Forget Tech Stocks: The Utility That's Solving AI's Biggest Problem

Artificial intelligence (AI) is still the biggest and best investment opportunity of an entire generation. But are investors looking right past the best way to play it?

Maybe. As it turns out, the industry's most underappreciated bottleneck isn't a lack of computing power, or for that matter, a lack of AI data centers. It's a lack of the massive amount of electricity needed to power the business. Goldman Sachs predicts that data centers' worldwide demand for electricity is set to grow by 165% between 2023 and 2030, mostly led by the ongoing proliferation of artificial intelligence.

There are several ways to supply this energy, with some operators even establishing their own on-premise power production facilities. Utilities companies remain best positioned to meet this growing need, though, and likely will be for the foreseeable future. They'll also see a great deal of unexpected growth, rewarding shareholders as a result.

And one of these utility names is arguably better positioned to plug into this growth than any of its peers. That's Constellation Energy (NASDAQ: CEG).

Image source: Getty Images.

Constellation is unique

If the name rings a bell, it may be because Constellation was the company that announced in September 2024 it intended to restart one of the nuclear power reactors at Pennsylvania's infamous Three Mile Island, after agreeing to supply electricity to a nearby AI data center owned and operated by technology giant Microsoft.

This is only a microcosm of the much bigger dynamic in place at this time, though, as well as Constellation Energy's ability to quickly increase production of electricity that the world is now demanding. With 21 nuclear reactors at 12 different sites accounting for 86% of its output, this company is the nation's single-biggest producer of carbon-free electricity. In fact, this outfit has more nuclear power production potential than the rest of the United States' nuclear producers combined.

Perhaps more important to interested investors, however, is the fact that this nuclear-rich mix means Constellation's got room to increase output from its existing and operational nuclear reactors quickly. That's why its usually slow-growing top line is expected to experience accelerated growth this year and next, and continue accelerating from there once Three Mile Island is brought back online, and as other production projects are completed and brought online.

Data sources: StockAnalysis.com, Simply Wall St. Chart by author.

Right place, right time, right product

Nuclear power isn't the only option to supply AI-focused data centers with the power they need, of course. Electricity is electricity regardless of how it's produced.

Nuclear power solves the enormous problem here and now, though, and does so cost-effectively. That's why Goldman Sachs adds that global nuclear power production is set to grow more than 50% by 2040. Meanwhile, boosted by executive orders issued by President Donald Trump, the World Nuclear Association predicts the United States' nuclear power production capacity could quadruple by 2050. Given that Constellation Energy is already a well-proven player in this space, it's difficult to see how it wouldn't be one of the biggest beneficiaries of this evolution of the energy industry.

The stock's recent setback stemming from the federal government's threats of capping electricity rates following its third quarter is more near-term noise than long-term warning, creating a nice buying opportunity here.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy, Goldman Sachs Group, and Microsoft. The Motley Fool has a disclosure policy.