Utility Stocks Come Down From AI-Driven Highs

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Michael Bromberg
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Michael Bromberg is a finance editor with a decade of experience. He is an expert at elucidating complex financial topics in clear, concise language. Michael received a Bachelor of Arts in literature from the University of Wisconsin-Madison and a master's in linguistics from the Universidad de Antioquia in Medellin, Colombia.

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Published October 09, 2024
05:51 PM EDT
Constellation Energy's Calvert Cliffs Nuclear Power Plant on the Chesapeake Bay in Lusby, Maryland.
Constellation Energy's Calvert Cliffs Nuclear Power Plant on the Chesapeake Bay in Lusby, Maryland.

Baltimore Sun / Contributor / Getty Images

Key Takeaways

  • Shares of Constellation Energy, NRG Energy, and Vistra fell Wednesday as analysts questioned if utilities stocks can hold onto their recent momentum.
  • All three stocks retreated from record highs posted at the end of last week on optimism about growth opportunities fueled by demand for energy to power artificial intelligence.
  • Despite Wednesday's declines, all three stocks remained solidly in positive territory for 2024.

Shares of power generators Constellation Energy (CEG), NRG Energy (NRG), and Vistra (VST) posted some of the steepest losses in the S&P 500 on Wednesday. The declines came after all three stocks ended last week with record highs on enthusiasm about opportunities to benefit from growing energy demand for data centers to support artificial intelligence (AI).

The retreat for the red-hot electric utility stocks came as several analysts expressed concerns about the sustainability of their valuations following massive AI-driven gains this year.

BTIG Analysts Warn Utilities Could Be Set for Correction

Although many analysts remain bullish about the upside potential for companies like Constellation, NRG, and Vistra as they could help meet the large energy demand needed to power AI, BTIG analysts suggested utilities could be set for a correction of around 7% to 10%.

According to BTIG's analysis, the sector's valuation appears "stretched" relative to its historical levels, and utilities tend to drop off following periods of outperformance versus the broader markets.

SentimenTrader's Jason Goepfert echoed that utility stocks have a history of reversing their momentum after strong runs, and added any cracks in the "new narrative about AI" could hit confidence in returns.

Constellation Energy Leads S&P 500 Losses Wednesday

Constellation Energy was the weakest performer of any S&P 500 stock Wednesday, plunging 6.1%. NRG Energy shares dropped 5.3%, while Vistra stock slipped almost 3%.

Despite the declines, all three stocks remained solidly in positive territory for 2024. Constellation shares have more than doubled in value since the start of the year, while NRG stock is up more than 70%. Vistra, meanwhile, remains the S&P 500's top-performing stock this year, having more than tripled in value over the period.

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  1. Barron's. "Utility Stocks Had Best 12 Months of the Century. Now Vistra, Constellation Are Falling."

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