NextEra Energy's $67 Billion Dominion Acquisition Will Make It the Dominant Power Player in the AI Era and a Must-Own Energy Stock

NextEra Energy (NYSE: NEE) already operates America's largest electric utility (Florida Power & Light) and one of the largest clean energy development companies in the U.S. (NextEra Energy Resources). It's a leader in renewable energy, natural gas, and energy storage.

The utility giant is about to get even bigger. Its recent agreement to acquire Dominion (NYSE: D) will create the world's largest regulated electric utility business. The roughly $67 billion deal will accelerate its earnings growth rate and make it the dominate player in powering the AI era.

Image source: The Motley Fool.

Creating a power supermajor

NextEra Energy has agreed to acquire Dominion in an all-stock deal valued at $67 billion. The transaction would combine NextEra's leading electric utility in Florida with Dominion's operations across the fast-growing southeast (Virginia, North Carolina, and South Carolina). The combined company will provide power to over 10 million utility customers across four of the country's fastest-growing states.

The merger will combine NextEra's best-in-class operations and development capabilities with increased scale to create a truly unmatched platform. The massive company will be able to buy, build, finance, and operate more efficiently, saving money over time. It will be the industry leader in nearly every category:

• No.1 in the world in renewables and battery storage.
• No. 1 in the U.S. in gas generation, total generation, generation build, annual capex, rate base, and the largest utility by market capitalization.
• No. 2 in the U.S. in nuclear generation.

All in on AI power

NextEra Energy has grown briskly over the last two decades despite modest growth in electricity demand. U.S. power demand has risen by only about 10% over the last 20 years, as energy efficiency gains have helped slow overall growth. Despite that, NextEra has delivered 9% compound annual adjusted earnings-per-share growth and 10% compound annual dividend growth during that period. However, catalysts like AI data centers will drive a power surge over the next two decades, with U.S. electricity demand expected to grow 60%, a sixfold increase from its growth rate over the past two decades.

NextEra Energy was already in a strong position to capitalize on the power surge. The company expected to invest between $295 billion and $325 billion in cumulative total capex through 2032. That positioned it to deliver 8%+ annual adjusted earnings-per-share growth over that period. It had high confidence in extending that growth rate to 2035. It's investing heavily to support rising power demand growth in Florida, including building out the industry's largest solar energy portfolio.

The merger with Dominion Energy will accelerate its growth through at least 2032. A major catalyst is Dominion's operations in Virginia. That state is the world's largest data center market. According to S&P Global's 451 Research, Virginia data centers will require 16.6 gigawatts (GW) of capacity this year, up from 13 GW last year. By 2030, they'll need more than 33 GW of capacity, exceeding the total power demand by U.S. data centers just four years ago.

By acquiring Dominion, NextEra Energy will be in an even stronger position to capitalize on the data center power megatrend. The combined company will be able to buy equipment more efficiently and finance projects at lower cost, driving higher investment returns. That supports NextEra Energy's view that it can deliver more than 9% annual adjusted earnings-per-share growth through 2032, an acceleration from its prior view. Meanwhile, there's meaningful upside from opportunities to support large power loads, investing in small modular nuclear reactors, and acquisitions.

A core energy stock holding

NextEra Energy's merger with Dominion will create a utility supermajor that will rival oil giants ExxonMobil and Chevron in enterprise value. The already massive company could double in size over the next decade as it capitalizes on the AI-power megatrend. That combination of strength and growth makes NextEra Energy a must-own energy stock for the next decade and beyond.

Matt DiLallo has positions in Chevron and NextEra Energy. The Motley Fool has positions in and recommends Chevron, NextEra Energy, and S&P Global. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.