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Utilities Sector Outlook: Powering the Tech Boom
The sector is experiencing a massive capital investment boom to meet new demand.
Key Takeaways
- Key growth drivers include soaring electricity demand from data centers and renewables.
- Customer bill affordability remains a critical challenge for many utility companies.
Investors must balance these opportunities against potential regulatory risks.
Please note that data may shift between report updates. Please visit Morningstar.com for the most recent data as well as breaking news content.
Utilities have surprisingly matched technology stocks as 2025's top performers, but can the rally last? While fundamental growth opportunities abound, driven by unprecedented demand and investment, significant risks loom. This utilities sector outlook for 2026 explores the powerful forces reshaping the industry.
For a comprehensive analysis and our latest stock picks, download the full Q4 2025 US Utilities Sector Report.
Technology and Utilities Are Converging in a Big Way
The technology sector's nonstop growth is fundamentally reshaping the utility landscape, thanks to the artificial intelligence and cloud computing revolution. Tech giants have become the industry's most critical new customers, creating a powerful "tech-utility" convergence.
Data centers have become a primary driver of commercial electricity demand growth across the United States. To secure the vast, reliable power needed for AI and cloud services, tech companies are forming direct partnerships with traditional utility companies. This collaboration is fueling a new era of growth.
Total electricity demand rose by 2.3% in 2025, an acceleration directly attributed to data centers expansion. Morningstar’s forecast shows this trend is just beginning. US data centers' electricity demand is forecast to triple between 2024 and 2030, eventually accounting for 10% of the nation's total electricity consumption.
Source: EIA, FRED. Data as of Dec. 8, 2025
In the last 18 months alone, the US data center market has grown by 50%. Beyond 2030, we anticipate that AI-related energy use will settle into a slower growth rate based on energy efficiency gains. The most demand will likely come from the Midwest and Southeast regions as well as Texas, where there is already a high concentration of data centers.
Source: Morningstar, Data Center Map. Data as of Dec. 8, 2025.
The Utilities Investment Surge is Driven by Long-Term Growth Projections
To meet this unprecedented wave of new demand, the utilities industry is taking on a historic investment surge. We are witnessing one of the largest year-over-year increases in capital investment since 2017, as companies direct their investment attention toward grid modernization and new generation capacity to meet demand. The sector saw capital investment climb 12% in 2025, with a further 6% increase projected for 2026.
Source: Edison Electric Institute, Morningstar. Data as of Dec. 8, 2025
Who’s doing this, exactly?
A few utilities include Alliant Energy, American Electric Power, Xcel Energy, and DTE Energy. DTE Energy, for example, is increasing its investment plan for 2026-2030 by $6.5 billion to accommodate the increase in new data center customers.
This spending represents a strategic overhaul of the nation's energy infrastructure. Utilities are aggressively future-proofing their networks to accommodate not just data centers, but also the broader energy transition. This involves modernizing transmission infrastructure, integrating smart grid technologies, and expanding capacity for renewable energy sources. This proactive investment is a core component of the positive utilities sector outlook for 2026, creating a more resilient and dynamic grid.
The Top Investment Picks in the Utilities Sector
Of the 39 utilities that Morningstar covers across the US and Canada, we have identified 4 top picks for investors to pay special attention to as they develop their 2026 strategies.
- Alliant Energy (LNT)
- American Electric Power (AEP)
- Edison International (EIX)
- Portland General Electric (POR)
Let’s dive into one of these picks.
We estimate Alliant Energy’s annual earnings growth at the high end of management’s 5%-7% guidance through 2027, and more than 7%-plus growth in 2027 and beyond. Their capital investment plan has increased 24% from its previous plan, supporting our growth estimate. They have started construction on 3 data center facilities in the Midwest, and a fourth center is planned.
Check out the detailed analysis of each top pick in the report.
What are the Biggest Challenges with Utility Sector Growth?
The most pressing challenges that this powerful growth narrative is facing are customer bill affordability and the potential for regulatory pushback. Building new infrastructure costs billions, and these costs are eventually passed onto customers through higher electricity bills.
Customer bill inflation is already a significant concern for many utilities. If bills rise too quickly, they can outpace wage growth and strain household budgets, leading to public and political opposition. This creates a risk that regulators may block or delay necessary rate hikes required to fund future investment plans. This regulatory squeeze could directly impact utility earnings and dampen the sector's growth trajectory, posing a challenge to the otherwise strong utilities sector outlook for 2026.
And despite an electricity price plateau starting in 2023 following a rapid increase in 2022, residential electricity inflation is still a concern for customers. We expect that the number of utility companies requesting rate increases will go up between 2026 and 2027 to cover higher operating costs and infrastructure investment.
The Affordability Paradox
The utility sector is caught in an affordability paradox. On one hand, it must invest billions to modernize the grid, meet increasing data center electricity demands, and transition to cleaner energy sources. This capital-intensive work is essential for long-term reliability and economic growth. The top performing utility stocks of 2025 have largely been those with clear, regulator-approved investment plans.
On the other hand, these necessary investments drive up the cost of service, leading to rising electricity bills for residential and commercial customers. This tension creates a delicate balancing act. Utilities must justify massive expenditures to regulators while demonstrating that they are not placing an undue burden on consumers. Navigating this paradox successfully is key to sustained growth.
The Renewable Energy Transition
The push for cleaner power continues to heavily influence utilities’ strategies and earnings. State-level renewable energy mandates are providing a significant upside to investment plans for specific companies, creating clear growth pathways. For example, Oregon's ambitious mandates are helping push annual earnings growth for local utilities towards the high end of the 5%-7% range.
While solar and wind power remain critical components of this transition, battery storage investment is accelerating. The demand for battery storage has surged as it is increasingly paired with solar projects to provide reliable, dispatchable power even when the sun is not shining. This pairing solves one of the biggest challenges of intermittent renewables and is unlocking new potential for grid-scale clean energy, making it a crucial part of any long-term utility investment strategy.
How Advisors and Investors Should React
The utilities sector's outlook for 2026 is robust, but investors must remain cautious. The opportunities presented by massive capital investment and new demand drivers must be carefully weighed against the persistent risks of regulatory hurdles and customer affordability. Additionally, the fast-evolving landscape of clean energy technology means that advisors must stay informed and nimble in order to effectively guide their clients through potential changes and opportunities.
Advisors should also encourage their clients to consider the impact of sustainability on utility investments. As more countries commit to reducing carbon emissions, there will likely be an increase in regulations and incentives.
