Solving utility affordability doesn’t mean data center development goes dark
BofA Global Research argues that AI-driven power demand remains a strong secular tailwind for utilities, despite political scrutiny over electricity affordability. The pod suggests that recent weakness in power stocks is due to rotation and unfair association with AI spending risks, not fading fundamentals. BofA sees selective opportunities in utilities that balance growth, regulation, and reliability.
What the desk is arguing
BofA Global Research utilities analyst Ross Fowler argues that the utility investment narrative is evolving from pure growth to smarter positioning, as political concerns about electricity affordability introduce complexity. However, he contends that AI-driven power demand and data center expansion remain powerful secular tailwinds, and recent stock weakness is likely due to rotation and unfair association with AI spending risks rather than fading fundamentals.
Fowler notes that some state governments are designing data-center tariffs to shift costs away from residential customers, lowering consumer bills while enabling economic development. This creates attractive entry points in utilities that balance growth, regulation, and reliability. Generation growth will come from diverse sources including solar, storage, and nuclear.
The desk implicitly rejects the view that political scrutiny over affordability will derail data center development, arguing that tailored tariffs can address concerns without stopping growth.
Key takeaways
- 01AI-driven power demand and data center expansion remain strong secular tailwinds for utilities.
- 02Political scrutiny over electricity affordability introduces complexity but can be managed with data-center tariffs.
- 03Recent weakness in power stocks creates attractive entry points; focus on utilities balancing growth, regulation, and reliability.
Market implications
Positive for select utility stocks, particularly those with regulated rate base growth and exposure to data center demand. The view suggests that rotation out of utilities may be overdone, offering buying opportunities. Diversified generation sources (solar, storage, nuclear) will benefit.
Risks to this view
Key risks include: (1) political backlash leading to unfavorable tariff structures or legislation that caps data center growth; (2) slowdown in AI investment or technology shift reducing power demand; (3) rising interest rates increasing utility discount rates and weighing on valuations.
AI Fuels Power Growth, Politics Shape the Path As utilities enter 2026, the investment narrative evolves from a pure growth story to one defined by smarter positioning and selective opportunity. While AI‑driven power demand and data center expansion remain powerful secular tailwinds, political scrutiny about electricity affordability-especially in states with tightly contested elections-introduces complexity. Some state governments are addressing these concerns by designing data‑center tariffs that shift costs away from residential customers, ideally lowering consumer bills while unlocking economic development.
In the opinion of BofA Global Research utilities analyst Ross Fowler, recent weakness in power stocks likely reflects rotation and a somewhat unfair association with AI spending risks in corners of the market rather than fading fundamentals. This has created some particularly attractive entry points. Utilities that balance growth, regulation, and reliability are well positioned to perform in this current market regime.
As for the source of generation growth, different costs and profiles will mean various utilities will see growth, from solar and storage to nuclear. You may also enjoy listening to the Merrill Perspectives podcast, featuring conversations on the big stories, news and trends affecting your everyday financial life. "Bank of America" and “BofA Securities” are the marketing names for the global banking businesses and global markets businesses (which includes BofA Global Research) of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC.
Securities, trading, research, strategic advisory, and other investment banking and markets activities are performed globally by affiliates of Bank of America Corporation, including, in the United States, BofA Securities, Inc. a registered broker-dealer and Member of FINRA and SIPC, and, in other jurisdictions, by locally registered entities. ©2026 Bank of America Corporation. All rights reserved.
Sources & References
How we cover this story