Stagnation of energy prosperity brought by AI: Why are US utility stocks falling?

The artificial intelligence boom has led to a surge in electricity demand expectations, driving the stock prices of American power generation companies and utilities to historic highs. However, these companies are now facing concerns about the end of the speculation frenzy - investors will not wait indefinitely for returns. Companies that have recently seen their valuations hit new highs are gradually returning to a rational valuation range, as the market realizes that the actual scale of their hoped-for large-scale data center business may not meet expectations, or that project progress is significantly slower than anticipated. This expectation gap is shaking investor confidence and prompting capital to reassess the real value and risk profile of this sector. After Constellation Energy (CEG.US) reported its third-quarter earnings conference call, its stock price fell 11% from its October high, as the call did not disclose any details of new power generation projects. A report from an analyst at Jefferies Financial Group Inc. was titled "No Data Center Deals." Similarly, Vistra Energy (VST.US) has fallen 16% since mid-October, as analysts note that the announcement speed of its data center projects was slower than expected. In addition, the S&P 500 Utilities Index, after hitting historic highs in October, is currently facing its worst monthly performance since August. "Today's utilities stocks are not what your parents' generation was familiar with," said Mark Malay, Chief Investment Officer at Muriel Siebert & Co. "The market is raising new concerns - can these companies achieve rapid expansion as expected? Are they wasting capital on projects that will never materialize?" Vistra Energy declined to comment. Constellation Energy did not immediately respond to requests for comment. While the utility sector has traditionally been seen as a safe haven for capital, the AI-driven data center construction frenzy has sparked an investment craze in this sector. Now, as the realities of the industry become clear, investors are trying to clarify two key questions: which companies can truly fulfill their grand expansion promises, and which ones can safely exit unscathed when the potential trillion-dollar AI bubble bursts. "Concerns about the AI bubble have exacerbated the recent weakness in utility stocks," said Travis Miller, utility analyst at Morningstar. "If electricity demand growth fails to materialize, utility stocks are overvalued at current trading prices." These companies have started to lower their expectations. Constellation Energy narrowed the upper limit of its full-year earnings forecast in November, Vistra Energy also adjusted its adjusted EBITDA forecast. NRG Energy maintained its full-year EBITDA forecast in November, but investors were expecting an upward revision. However, some analysts believe that this pullback is not a cause for concern, as investors are simply taking profits after the big gains in October. "There is no bubble in the utility sector," said Sophie Capu, utility analyst at KeyBanc Capital Markets. "The market is consolidating, waiting for the next round of growth to come." Despite the recent declines, Constellation Energy is still up 60% this year, NRG Energy is up 87%, GE Vernova (GEV.US) is up 79%, even surpassing NVIDIA Corporation's 34% increase this year. Tim Winter, portfolio manager for utility sector at Gabelli Funds, said another significant threat facing the utility sector is that the AI market may experience disruptive technological breakthroughs like the DeepSeek event earlier this year, leading to a complete collapse of their electricity demand growth expectations. It was reported earlier this year that DeepSeek's AI model consumes only a fraction of the energy used by American companies, causing widespread declines in electricity stocks. Such developments will particularly impact unregulated electricity retailers like Constellation Energy, NRG Energy, and Vistra Energy.