Melius names five stock-beneficiaries of the energy revolution that AI needs to drive

Just as Thomas Edison ushered in the age of electricity more than a century ago, artificial intelligence could become the driver of a new "age of electrification," analysts at Melius Research said. In their opinion, owners of shares of independent power producers and companies in the oil and gas sector can benefit from this trend.

Independent Power Producers (IPPs) could be the main beneficiaries of a new energy revolution tied to artificial intelligence, Melius analysts James West and Sanskriti Reddy wrote in an Aug. 20 note. The New York-based research firm began analyst coverage on five such stocks at once: Constellation Energy, Vistra, NextEra Energy, NRG Energy and Talen Energy. Each has been assigned a "buy" rating (Buy) by analysts, Barron's reports.

West and Reddy's thesis is simple: AI computing requires data centers that consume staggering amounts of energy. Thus, energy transformation is becoming a key prerequisite for the AI revolution, Melius analysts said. They used a common Wall Street reference to the days of the gold rush, when shovel salesmen, not gold miners, made the biggest and most stable profits.

"AI is a gold rush, and energy and energy supply, especially electricity, is in spades," said West and Reddy. - The transformation of energy into intelligence is one of the most profound economic shifts we are likely to witness in our lifetime, and this transformation is only in its initial phase."

Melius team recommended shares of all players in IPP sector, but named Constellation Energy, NRG Energy and Vistra as its favorites. All three stocks ended the trading day on August 20 in the negative. However, since the start of 2025, Constellation and Vistra are up 40% and NRG is up 62%.

Because independent power producers in the U.S. operate outside of rate regulation, they can give traditional regulated utilities a head start: they can more easily adjust quickly to the immediate needs of AI data centers, Melius analysts said. IPPs can sell power to data centers under contracts for years in advance - that level of stability should lead to independent power companies' shares trading as high-yielding infrastructure assets, they said.

Not only IPPs can become potential winners on this trend. Melius analysts recommend buying shares of oilfield services firms Halliburton and Schlumberger, as well as oil companies Diamondback Energy and ConocoPhillips. West and Reddy attributed their optimism to the fact that with increased energy demand, public preferences have shifted away from green energy and toward cheaper oil and gas.

"The current economic system is based on hydrocarbons, and this will continue for decades, if not centuries," West and Reddy wrote, calling the scientific evidence on climate change "inconclusive."

Melius expects consumption of natural gas, which currently provides 50% to 60% of data center electricity, to increase dramatically in the near future. However, nuclear power, which currently accounts for about 20% of data center electricity, will overtake all other sources within the next two decades, analysts predict.

According to FactSet, Wall Street analysts on average recommend buying shares of Constellation Energy, Vistra, NextEra Energy and NRG Energy with a consensus rating of Overweight ("above market"), Talen Energy - with a Buy rating. Average target prices calculated by the service assume growth of these companies' quotations in the range from 8.7% for NextEra to 23.6% for NRG in the nearest year.

Economists are no less optimistic about the oil sector stocks mentioned by Melius. The consensus rating for Halliburton is Overweight, and for Schlumberger, Diamondback and ConocoPhillips - Buy. The average target prices for these four stocks suggest a 24-35% upside on a one-year horizon.

This article was AI-translated and verified by a human editor