Artificial intelligence (AI) stocks have soared over the past few years, with growing AI buildout making some investors wary of huge capital expenditures planned by hyperscale companies. For investors seeking AI growth outside of major tech companies, utility providers such as Constellation Energy (NASDAQ: CEG) The upside potential offered will benefit from this expansion. Here’s how.
Hyperscalers are spending a lot of money to expand their data center footprint. These data centers designed for artificial intelligence consume more energy than traditional data centers. These data centers use graphics processing units, which generate large amounts of heat and require cooling, and consume more power than central processing units in previous data centers.
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Constellation Energy is the largest producer of carbon-free electricity, the energy source most wanted by hyperscalers. The company has taken advantage of strong energy demand and has signed 20-year power purchase agreements (PPAs) with: Microsoft and meta platformthe parent company of Facebook. Constellation is a popular choice for hyperscalers because of its large nuclear footprint and nuclear power’s ability to provide reliable and sustainable energy.
The company recently made a splash with its $26.6 billion acquisition of Calpine Corp., which it completed in January. The move brings its production capacity to 55 gigawatts (GW), including 27 GW of natural gas and geothermal capacity. The new combined assets enable Constellation to provide dispatchable power, ensuring grid reliability for homes and businesses.
Constellation Energy’s shares hit $412 per share in October but have fallen 30% recently amid high growth expectations and the changing political landscape. On January 16, Reuters reported that 13 state governors will sign an agreement with the Trump administration to curb rising power costs, which reportedly includes a two-year price cap for future auctions of the PJM power grid.
While the move could limit Constellation’s upside in the 2028-2029 and 2029-2030 delivery year auctions, the company has successfully liquidated all of its PJM capacity in the most recent 2027-2028 auction, which will generate revenue at that year’s liquidation price (the Federal Energy Regulatory Commission-approved cap of $333.44 per megawatt day). Not only that, the deal with Microsoft and Yuan Platform also locks in long-term agreements, providing stability and visibility for future revenue.
