Forget Tech Stocks: The Energy Stock That's Fueling the Data Center Explosion

Tech stocks have been the hot trade over the past year. The tech-heavy Nasdaq-100 Index is up over 19% in the last 12 months compared to a nearly 15% rise in the S&P 500. That's largely due to the explosive growth of data centers to support cloud computing and AI.

While tech stocks are a major beneficiary of the data center boom, they aren't the only ones capitalizing on the megatrend. Energy giant NextEra Energy (NYSE: NEE) is quietly helping fuel the explosive growth in data centers.

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The need for power

Data centers house the chips and other hardware needed to support cloud computing applications. This equipment generates tremendous heat, which requires cooling systems to keep this tech hardware from overheating. As a result, data centers consume a lot of power.

The expected explosive growth in data center capacity in the coming years will fuel a surge in electricity demand. U.S. power demand is on track to grow 58% over the next 20 years, six times faster than its rise over the prior decade.

Built to power the data center boom

NextEra Energy is the country's largest electric utility. It's also a leading clean power infrastructure development company. Its scale and expertise put it in the pole position to capitalize on the U.S. data center boom.

Technology companies are lining up to partner with NextEra Energy to power their data center expansion initiatives. For example, last December, the company signed 11 new power purchase agreements (PPAs) and two energy storage agreements with Meta Platforms totaling 2.5 gigawatts (GW) of power. It will develop several solar energy projects to support Meta's power needs. This agreement builds on the nearly 500 megawatts (MW) of operating projects the company already has supporting Meta's operations.

NextEra Energy also has an extensive strategic partnership with Google. Last October, the companies signed a collaboration to accelerate nuclear energy deployment in the U.S. As part of the deal, NextEra will restart a dormant 615-MW nuclear power plant supported by a 25-year PPA with Google. They will also explore deploying additional nuclear energy capacity to fuel AI data centers. The companies followed that up with a landmark strategic partnership in December. As part of this collaboration, they'll jointly develop multiple GW-scale data centers. With these and other deals, NextEra has agreed to supply about 3.5 GW of power to Google to support its data center expansion initiatives.

The utility is also partnering with ExxonMobil to develop a 1.2 GW power plant that combines gas generation with carbon capture technology. NextEra is looking for a data center company for the proposed site. It could be the first of many gas-powered data center projects the companies develop in the coming years.

Fueling the data center explosion

NextEra Energy is a leader in producing clean energy. That has put it in a strong strategic position to fuel the data center explosion. It has signed deals to provide electricity to leading technology companies while also developing powered data center projects. These investments should fuel robust growth for the power company over the coming decade.

Matt DiLallo has positions in Alphabet, Meta Platforms, and NextEra Energy. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and NextEra Energy. The Motley Fool has a disclosure policy.