By Ian Salisbury
Utilities are set to spend more than $1 trillion to meet AI energy demand. That investment may power earnings growth, but for dividend investors it's a mixed blessing.
Artificial intelligence demands unprecedented amounts of power, and utilities have been rushing to meet that demand. Projected capital expenditure, or capex, by 47 investor-owned utilities is expected to reach nearly $230 billion in 2026, up 56% from 2022, according to a recent report from S&P Global. All told, investment should reach $1 trillion between 2025 and 2029.
That's a bullish signal for utility stocks, since capex correlates directly with earning per share growth, argues Jefferies in a note Friday. Regulated utilities typically have their profits capped by local regulators, but regulators often allow utilities to raise rates and grow earnings to recoup investments.
Jefferies noted third-quarter earnings seasons saw plenty of utilities revise capex upward, often by double-digit percentages. There could be more to come. "Positive revisions should be robust & plentiful across the utility landscape in 2026," wrote the firm.
Jefferies thinks Entergy and NiSource, two firms that have made the biggest bets are likely to end up winners. The two companies "outlooks are mainly driven by well-defined data center pipelines with clear potential upsides."
Entergy should benefit from Meta's plan, announced in December, to build a $10 billion data center in Louisiana -- the utility has already submitted plants to build three natural gas power plants to support it.
NiSource, meanwhile, recently won regulatory approval to create a new, separately regulated power generation subsidiary to feed data centers in Indiana. The development should provide "opportunities to raise capex and secure long-term, fixed rate contracts outside the traditional regulatory model," wrote CFRA analyst Daniel Rich in October, as he upgraded the stock to Buy from Hold.
A big potential downside, of course, is that bet-the-farm growth prospects aren't necessarily what investors want when they buy utility stocks.
As Barron's recently noted , all that electricity demand has already led to a 7% increase in electricity prices for many consumers, risking a potential backlash. And then, of course, there's the risk the AI bubble fizzles and utilities are left with too much capacity.
What's more, dividend investors may have a still more immediate concern. The rising stock prices of utilities have pushed down dividend yields. And every dollar poured into a power plant that could grow tomorrow's profits is a dollar not being handed back to investors today.
In the past three years, Entergy's share price has rallied nearly 75%, thanks to excitement over future earning growth. But dividend payouts haven't kept up. The stock's yield has slipped from 3.7% to 2.6% during that time.
NiSource, meanwhile, has returned 67%, and seen its yield fall from 3.4% to 2.6%.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 09, 2026 13:11 ET (18:11 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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