During Brookfield Renewable’s fourth-quarter 2024 earnings call, the company’s CEO highlighted a significant shift in electricity demand spurred by the AI revolution, following several decades of modest growth. This trend, mirrored by electricity providers across the board, presents a notable opportunity for investors, particularly those focused on income.
The CEO of Brookfield Renewable expressed the belief that artificial intelligence (AI) represents one of the most significant technological advancements of our lifetime. While this may be accurate, historical examples of major technological leaps, such as the rise of electric vehicles (EVs) led by Tesla, illustrate that not every company in a rapidly advancing sector will succeed. Many EV companies have failed, while a few have endured volatile stock valuations.
A similar pattern emerged with internet stocks at the turn of the century. Key players like Alphabet emerged as industry giants, although competitors such as Yahoo! faced substantial challenges, highlighting the difficulties investors face in selecting long-term winners.
Despite the challenges in choosing successful AI stocks, one constant requirement across the board will be a substantial need for electricity.
Investors seeking to capitalize on increased electricity demand from AI developments might consider regulated electric utilities. These companies often have monopolistic advantages in their service areas, positioning them well to cater to AI’s needs. For instance, Dominion Energy has reported an 88% increase in electricity interest from data centers in its Virginia operations since July 2024. As an important data hub, Virginia supports AI efforts, and Dominion’s high dividend yield of 4.8% could potentially benefit from AI-driven electricity demand.
On a smaller scale, Black Hills anticipates its earnings contribution from data centers and AI to more than double by 2028, with expectations that this customer group could comprise 10% or more of its earnings. Black Hills, a Dividend King with a yield of 4.4%, has a strong legacy of dividend increases.
Alternatively, Brookfield Renewable offers exposure to clean energy through its diversified portfolio, which includes hydroelectric, solar, wind, storage, and nuclear assets. The company is poised to leverage AI demand growth as companies pursue clean power options, boasting a yield of up to 6.5% for its partnership share class.
For more adventurous investors, NuScale Power presents an opportunity in the realm of small-scale modular nuclear reactors, suitable for proximity to AI data centers. Although it has not yet sold a reactor and does not currently generate profit or distribute dividends, its innovative technology might attract AI companies.
Overall, a range of investment options exists to support AI with the necessary electricity supply. While regulated utilities present a relatively safe approach, companies like Brookfield Renewable offer a sustainable energy angle. Meanwhile, NuScale Power provides a direct investment in nuclear power, potentially benefiting from AI’s growing electricity needs. Whether focused on dividends or growth, investors can find suitable opportunities in this sector.
