Chart of the week: Analysts reveal their forecasts for data centres
Investing in utilities to capitalise on the AI trend? Read this.
This week's chart comes from Morningstar's equity research analysts Utilities 2025 Outlook. It looks at the US data centre demand forecasts from Morningstar. With many investors trying to profit on the AI revolution, they are looking at parallel and benefiting sectors and companies from the artificial intelligence trend. Utilities have a healthy connection to the trend, and many investors are watching how data centres will impact the demand for utility services.
Headline-grabbing forecasts for skyrocketing data centre electricity demand growth and new investment needs contributed to a large utilities rally in 2024. The sector (US) enjoyed its best performance since 2000. Utilities were up 27% including dividends.
Despite beating the market two fo the last three years, utilities' 7% average return since 2021 matches the sector's 40-year average. Our analyst Andrew Bischof, CFA believes this is a good benchmark for investors' expectations in 2025. Investors should mute their expectations compared to 2024.
Our analysts believe that there are underappreciated risks in the sector such as regulatory delays and execution. Growth is going to take longer to materialise than investors expect, and many projects will fall through.
The base case assumes that data centre electricity demand is 100 terawatt hours now, and will grow 46% cumulatively by 2032, representing 3% of US electricity demand. This is less demand than electric vehicles.
However, the outlook for data centres electricity demand trends towards the bull-case scenario from the last demand forecast. In our bull case, data centre electricity demand will more than double by 2032 and represent 4.5% of total US electricity demand. Other data centre demand forecasts are even more bullish.
Our analysts believe that these bullish forecasts don't consider the challenges that utilities, regulators and grid operators will face supplying the energy required to support huge new data centres, particularly in areas that have minimal existing infrastructure or that already face reliability risks.
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