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2026 Utility Industry Trends: AI, Data Centers, and Renewable Growth
As we look ahead, robust earnings and dividend growth in 2026-27 should support 8%-10%-plus annual total returns for many utilities.
Even though a late-2025 fade allowed technology stocks to finish the year as the top-performing sector, utilities beat the market for the third time in four years and are up 70% from their bottom in late 2023. Utilities’ strong fundamentals and growth opportunities suggest this rally could continue even amid ongoing economic and market uncertainty.
Given the evolving sector, financial advisors must stay informed on key trends to initiate valuable conversations and support clients. Our 2026 Utilities Outlook report analyzes utilities sector trends like renewable energy, customer affordability, and data centers to identify their potential impact across different states and regions of the US, and top utilities stock picks.
Here’s a snapshot of the top utility industry trends covered in the report:
- Renewable Energy Expansion: Solar and wind capacity is set to surge, with nearly 242 GW of new utility-scale projects expected over the next five years.
- Data Center Demand: Electricity consumption from US data centers is forecast to triple by 2032, driven by AI and hyperscale computing needs.
- Technological Integration: Utilities are building dedicated data center campuses and collaborating on massive initiatives like the Stargate Project.
- Regulatory Shifts: New clean energy mandates and improved regulatory frameworks in key jurisdictions are reshaping investment strategies.
- Investment Outlook: Despite high interest rates, top utilities stock picks are positioned for robust earnings and dividend growth in 2026-27.
Recent Performance in the Utilities Sector
Utilities continue to demonstrate significant strength. The Morningstar US Utilities Index was up 19% in 2025 and has surged an impressive 70% since its low in late 2023, including dividends. While the technology sector ultimately pulled ahead at the end of last year, the long-term recovery for utilities is a compelling story for investors.
Utilities Valuation Snapshot
Source: Morningstar. Data as of Jan. 22, 2026.
As of mid-January 2026, Morningstar considers US utilities to be fairly valued. This assessment comes as the sector's average dividend yield has hit an all-time low of 3%, signaling a market focus that has pivoted from yield towards growth potential. Despite this shift and interest rates remaining at multidecade highs, most US utilities continue to plan for their largest capital investment growth cycle in decades.
What's Trending: Solar and Wind Lead the Clean Energy Transition
The most significant trend in the utilities sector is the rapid growth of renewable energy–particularly solar and wind. Falling project costs and state requirements have jumpstarted investments, and this trend is set to accelerate.
Morningstar expects nearly 242 GW of new utility-scale solar and wind to come online during the next five years. This represents a substantial increase from the 150 GW installed during the previous five years. Solar, in particular, is forecasted to be the fastest-growing clean energy technology due to its falling costs, location flexibility, and reliability benefits. To accommodate this influx, utilities must continue to innovate and invest in smart-grid technologies and battery storage to ensure grid stability. After the federal tax credit phase-out in 2030, we expect renewable development to moderate significantly.
Solar Demand Remained Strong in 2025 Amid Tax Policy Uncertainty
Source: Rystad. Data as of Jan. 12, 2026.
Regulatory Landscape & Clean Energy Mandates
State-level regulatory changes and clean energy mandates are powerful drivers of investment and strategy for utilities. These policies are creating both challenges and significant growth pathways.
In North Carolina, Duke Energy's most important jurisdiction, regulation has improved significantly. Recent legislation allows for multiyear forward rate agreements and provides clear support for investment, creating a more predictable environment. Meanwhile, Oregon's 2040 100% clean energy mandate will require substantial new investment from utilities operating in the state to meet its ambitious targets.
Data Center Demand Forecasts Are Grabbing Headlines
Historically, US electricity demand has mirrored economic growth, but this relationship weakened after 2000 due to energy efficiency gains. As a result, electricity demand remained flat for years. Now, we are on the cusp of a revival, driven by electric vehicles, new manufacturing, and data centers fueled by advancements in AI. We expect demand to grow 1%-2% annually.
The AI craze helped power utilities’ market-beating returns. The outlook is robust, with our latest analysis expecting electricity demand from US data centers to triple between 2024 and 2032.
Morningstar Forecast: Data Center Electricity Demand to Triple by 2035
Source: Morningstar. Data as of January 2026.
However, advisors should approach this with a balanced perspective. The most bullish forecasts may not fully consider the challenges utilities, regulators, and grid operators face. These include navigating complex regulatory approvals, managing tight supply chains for essential equipment, and ensuring grid reliability. Furthermore, there is a rising risk of competition from non-utility companies. Large energy firms and startups are increasingly competing to serve data centers, and if they provide faster, cheaper access to energy, utilities might not realize the long-term growth they currently expect.
Technological Advancements & Strategic Projects
To meet the surging demand from data centers, utilities are not just expanding capacity—they are building entire data center campuses. This strategic move aims to attract and support the massive energy needs of hyperscale computing operations.
A prime example of this trend is the planned Stargate Project in Texas. This ambitious initiative is reportedly backed by the Trump administration, Softbank, Oracle, OpenAI, and other major technology companies. Projects of this scale highlight the deep integration between the technology and utilities sectors and represent significant long-term investment opportunities.
High Interest Rates, Inflation & Dividend Yields
Rising interest rates during the last few years have made utilities' dividend yields less attractive relative to other income-generating assets. After a decade of high dividend yield premiums, the relationship has flipped. The 10-year US Treasury yield has remained above the utilities sector average dividend yield for one of the longest periods in 30 years.
Even if interest rates fall, dividend yields would have to rise substantially to close the current discount. Compounding this pressure, electricity prices were up 6.7% year over year in the US Bureau of Labor Statistics’ December inflation report. This climb in consumer costs puts additional pressure on regulators and utilities as they plan future investments.
Understanding the US Utilities Landscape: Investment Opportunities
Overall, utilities are central to the energy system and are poised for significant growth. For income-focused investors, they have long been favored for their stable cash flows and high dividend payout ratios, offering steady returns even amid market volatility.
As the sector narrative shifts towards growth driven by data centers and decarbonization, it becomes crucial for advisors to identify specific opportunities. Based on our analysis, top picks for 2026 include:
Most of these companies carry a "Narrow" moat rating and Low to Medium uncertainty, providing a foundation of stability for investors looking to capitalize on the sector's growth prospects. While broad valuations are considered fair, focusing on high-quality names and monitoring regulatory developments closely will be key to navigating the 2026 utilities landscape.
Go Deeper on Utilities Stocks Data
The US utilities sector is undergoing a transformation driven by renewable energy expansion, increasing electricity demand, and stable investment returns. These utilities sector trends and dynamics underscore the critical role utilities play in shaping the nation's energy future.
Deepen your analysis of the utilities sector with Morningstar Data+Analytics. Our powerful capabilities give you the tools and insights you need to make informed decisions—all backed by our independent research.
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