AI-fueled data center growth is overwhelming U.S. power infrastructure, and Southern Company may be a surprising beneficiary. As demand spikes, new executive orders are pushing energy deregulation to fast-track utility upgrades across the country. In today’s FA Alpha Daily, we look at how this under-the-radar utility company could quietly profit from the AI revolution.
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Fayetteville, Georgia is at the center of an ongoing controversy.
A massive wave of data centers, developed by digital-infrastructure leader QTS Realty Trust and backed by financial giant Blackstone (BX), is transforming the town.
They’re consuming electricity at an unprecedented rate. And energy companies are scrambling to keep up with demand.
New power lines are popping up all over, cutting across neighborhoods and sparking frustration among residents.
This isn’t just a problem in Fayetteville. It’s happening all across the country, as the artificial-intelligence (“AI”) revolution plays out.
AI workloads, for things like cloud services and large-language models, need lots of energy and that requires lots of data centers. In fact, global demand for data centers could more than triple by 2030.
Energy demand is exploding, and today’s infrastructure just isn’t keeping up.
That’s why energy companies are rushing to expand. They’re putting up high-voltage lines and upgrading infrastructure to handle the load.
For local communities, this isn’t great news. Property values are at risk and landscapes are changing. Utility companies are even asking homeowners to give up land for new power lines.
Yet, while residents push back, power companies are cashing in.
That’s because more data centers mean a steady, growing demand for power and higher profits for energy companies.
In other words, no matter how this infrastructure gets built—whether above ground or below—one thing’s for sure: Power companies will make a killing.
The Southern Company (SO) is a potential winner in this energy landscape.In the U.S. South, especially in Georgia, Southern Company is the go-to power provider.
The company generates, sells, and distributes electricity and natural gas to about 9 million residential and commercial customers.
However, despite skyrocketing energy demand, the company hasn’t attracted many investors. We can see this by looking at Southern Company’s Uniform price-to-book (P/B) ratio.
The Uniform P/B ratio compares a company’s total value with the value of the assets on its balance sheet (or “book”). The higher the P/B ratio, the more investors are willing to pay for its assets.
Said another way, it measures how valuable investors think the company’s assets are.
Southern Company’s Uniform P/B ratio has been mostly flat for the past six years, at around 1.3 times. Take a look.
As you can see, the company’s current valuation still sits at pre-AI levels
The market doesn’t fully appreciate AI’s potential, its impact on energy demand, and how Southern Company stands to benefit.
AI is clearly a game changer…
This technology is reshaping entire industries and daily lives. However, AI’s massive energy needs often go unnoticed by investors.
Understandably, they’re more focused on AI stocks than the logistics of data centers.
Yet data centers are expanding, meaning utilities like Southern Company will see soaring power demand… and this means more profits.
This is a key part of the AI revolution and it’s similar to what we saw during the Internet boom of the 1990s.
However, this opportunity in AI could be even bigger because of sweeping changes taking over the federal government.
Back in April, the White House issued Executive Order 14270. It’s targeted at deregulating the energy industry and it goes into effect on September 30.
When that happens, a wave of investment will come crashing into the energy industry, sending select stocks through the roof.
Right now, investors haven’t fully realized the strength of the AI trend. We can see that, in part, through Southern Company’s stagnant valuation.
Soon, however, the massive energy demand for AI will be impossible to ignore.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
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