We recently compiled a list of the 12 Best Utility Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where The Southern Company (NYSE:SO) stands against the other utility stocks.
The rapid growth of artificial intelligence (AI) is putting an unprecedented strain on the power grid. One of the primary concerns is the unpredictable nature of AI demand. Unlike traditional industries, AI companies are experiencing exponential growth, making it difficult for utilities to forecast and plan for energy demand. This uncertainty is further complicated as the regulatory framework governing utilities is also a significant obstacle to addressing the energy crisis. Utilities are required to petition regulators for approval to invest in new infrastructure, which can be a time-consuming and uncertain process. This has led to a situation where utilities are unable to invest in the infrastructure needed to support the growth of AI, exacerbating the energy crisis.
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In an interview with CNBC on December 6, Nicholas Campanella, Senior Equity Research Analyst at Barclays, discussed the growing demand for power to support the increasing needs of data centers and the tech industry. Campanella forecasts that the US would face a shortage of resources to meet this demand, making nuclear power an attractive option. Campanella cited the fact that gas turbines are largely sold out between now and 2029, and limited ability to bring on new renewables between now and 2026-2027. Campanella emphasized that the growing demand for power from data centers and hyperscalers would drive up demand for nuclear energy.
Given the recent surge in their price, Campanella highlighted that investors should still buy stocks in utility and independent power-producing companies involved in nuclear power, citing the growing mismatch between supply and demand for power in the late decade. According to Campanella, utility companies that have nuclear assets are well-positioned to capitalize on this trend, particularly those with early site permits or Combined Operating Licenses. Campanella pointed out that the last nuclear renaissance had left several sites with existing permits, which could be leveraged to expedite the development of new nuclear facilities. He forecasts that additional large-scale and Small Modular Reactor (SMR) commitments will be made in 2025.
The growing energy demands driven by the rapid expansion of artificial intelligence and data centers present opportunities for investors, particularly in utility companies. With that in context, let’s take a look at the 12 best utility stocks to buy according to hedge funds.
Our Methodology
For this article, we used the Finviz and Yahoo stock screeners to find the 40 largest utility companies. We then used Insider Monkey’s Hedge Fund database to rank 10 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician working with a control panel in a gas distribution center.
The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 37
The Southern Company (NYSE:SO), headquartered in Atlanta, Georgia, is a leading provider of energy and serves approximately 9 million customers in 6 states across the southeastern United States. The company’s portfolio includes electric utilities such as Georgia Power, Alabama Power, and Mississippi Power, as well as natural gas utilities like Atlanta Gas Light. The Southern Company (NYSE:SO) generates electricity using natural gas, coal, nuclear, and renewable sources.
The Southern Company (NYSE:SO) is making significant investments in renewable energy and advanced technologies to meet the growing energy demands while reducing environmental impact. The company’s renewable portfolio includes a mix of solar, wind, and other clean energy sources. Southern Power, the company’s wholesale generation business, is continuously exploring opportunities to add new assets, whether natural gas or renewable, in response to customer demand. The Southern Company (NYSE:SO) is also at the forefront of research and development in carbon capture and sequestration technologies, operating the National Carbon Capture Center for over 50 years.
The Southern Company’s (NYSE:SO) service territories have been actively driving economic development and customer growth, which is benefiting the growth of the company. In Q3, 42 companies either established or expanded operations within the company’s service territory representing capital investments totaling approximately $2.6 billion. This momentum is particularly strong in Georgia, where Georgia Power’s potential load additions and economic development pipeline have grown to over 36 gigawatts by the mid-2030s, with 8 gigawatts already committed.
Overall SO ranks 8th on our list of the best utility stocks to buy according to hedge funds. While we acknowledge the potential of SO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.