Utilities Sector Outlook: Powering the Tech Boom

Utilities entered 2026 after two years of market-beating performance, but the rally has cooled. The Morningstar US Utilities Index has fallen 5% from its February peak while the broader market has gained 9% over the same period. Despite the recent pullback, we believe the sector's long-term growth outlook remains intact, supported by electricity demand growth, data center expansion, and rising utility investment plans.   

For a comprehensive analysis and our latest stock picks, download the full Q2 2026 US Utilities Sector Report. 

The technology sector's rapid growth continues to reshape the utility landscape. Artificial intelligence, cloud computing, and digital infrastructure are creating a powerful convergence between technology companies and electric utilities. 

Data centers have become one of the most important drivers of new electricity demand in the United States. To secure reliable electricity for AI and cloud-computing operations, technology companies are increasingly partnering with utilities, creating significant opportunities for investment and earnings growth.  

After more than a decade of relatively flat electricity demand growth, Morningstar estimates US electricity demand will grow an average of 1.4% annually through 2030. Data centers, building electrification, and electric vehicles are expected to be important contributors to that growth.  

The commercialization of artificial intelligence represents a transformational source of new demand. We assume US data-center electricity demand will quadruple by 2030 and increase sixfold by 2035. While AI-related energy consumption is expected to continue growing beyond 2030, efficiency gains and a shift from AI model training to model inference could temper growth rates over the longer term.

Source: Data Center Map, Company reports, Morningstar, Data as of June 8, 2026. 

To meet growing electricity demand, the utilities sector is entering its largest investment cycle in decades. Utilities are increasing investments across generation, transmission, and distribution systems to serve data centers, manufacturing facilities, and broader electrification trends.  

Utilities sector capital investment is projected to increase 17% in 2026 and another 10% in 2027. The Edison Electric Institute estimates utilities will invest approximately $1.4 trillion between 2026 and 2030, reflecting accelerating infrastructure requirements across the sector.

Several utilities have recently expanded investment plans to support expected demand growth. Alliant Energy increased its 2026-29 investment plan by 17% to $13.4 billion. American Electric Power raised its capital investment plan to $78 billion and identified additional investment opportunities beyond that amount. Evergy's long-term plan could double its asset base by 2030, while PG&E continues investing heavily to support California's energy transition and growing electricity demand.  

This spending extends beyond data centers. Utilities are modernizing transmission infrastructure, upgrading distribution systems, integrating renewable generation, and deploying technologies that improve reliability and grid resilience. These investments provide a foundation for long-term earnings growth and a more flexible energy system.

1. Alliant Energy LNT
2. American Electric Power AEP
3. DTE Energy (DTE) 
4. Portland General Electric POR

Let's take a closer look at one example. 

We estimate Alliant Energy's annual earnings growth at the high end of management's 5%-7% guidance through 2027 and above 7% thereafter. Its four-year, $13.4 billion capital-investment plan is 24% larger than its prior plan. The company also has four data-center customers representing approximately 3.4 gigawatts of peak demand, with three campuses already under construction and a fourth supported by a signed electric-service agreement.   

Check out the detailed analysis of each top pick in the report. 

Despite the strong growth outlook, affordability concerns and regulatory risk remain significant challenges. 

Building and modernizing energy infrastructure requires substantial investment, and many of these costs are ultimately recovered through customer rates. Utilities therefore face increasing pressure to demonstrate that investment plans create long-term value while maintaining affordability for residential customers.  

Residential electricity prices increased nearly 8% year over year during the first quarter of 2026. Electricity continues to be a meaningful contributor to inflation, creating additional scrutiny of utility rate requests and investment proposals.  

Utilities and regulators are increasingly focused on ensuring large-load customers, including data centers, pay an equitable share of infrastructure costs. Companies are employing large-load tariffs, bilateral contracts, and other mechanisms designed to support investment while limiting impacts on residential customers.  

Successfully managing this balance between growth and affordability will play a key role in determining which utilities are best positioned to capitalize on future opportunities.  

The transition toward cleaner energy remains an important driver of utility investment and earnings growth. 

Pending expirations of federal tax incentives has accelerated solar and battery-storage investment in 2026, but development pipelines remain robust through 2030. Utilities continue to invest in renewable energy and supporting infrastructure to meet growing electricity demand and state clean-energy mandates.  

Battery storage is becoming an increasingly important part of the energy mix. Utilities are pairing batteries with solar facilities to improve reliability, address intermittency concerns, and provide dispatchable power when renewable generation is unavailable. As battery deployments accelerate, they are helping unlock additional opportunities for renewable energy development and grid modernization.  

The utilities sector's outlook remains favorable despite a recent decline in share prices. Demand growth from data centers, electrification, manufacturing activity, and renewable energy development continues to support a strong long-term investment case. Earnings-growth expectations have improved as utilities expand capital-investment programs and secure new sources of load growth.  

At the same time, investors should remain attentive to affordability concerns, regulatory developments, and execution risks associated with large-scale infrastructure projects. Companies that successfully balance growth opportunities with customer affordability and constructive regulatory relationships are likely to be best positioned for long-term success.  

As the energy landscape continues evolving, advisors and investors should monitor developments in data-center demand, grid investment, renewable energy adoption, and utility regulation to identify emerging opportunities across the sector.   

Please note that data may shift between report updates. Please visit Morningstar.com for the most recent data as well as breaking news content.