Utility stocks have not kept pace with the electricity demand story in 2026. The Utilities Select Sector SPDR Fund (XLU) closed at $44.04 on August 12, 2026, up 2.0% from $43.18 at the end of 2025 and 4.5% below its March 31 level of $46.11 [5]. Meanwhile the U.S. Energy Information Administration's August outlook projects electricity sales rising from 4,058 billion kilowatthours in 2025 to 4,130 billion in 2026 and 4,251 billion in 2027, with the commercial sector, which includes data centers, growing 3.5% this year and 4.1% next year [1]. The gap between demand growth and share prices comes down to interest rates and to how utilities are paid.
How much power data centers are adding to demand
EIA's August 2026 Short-Term Energy Outlook, released August 11, shows the demand shift concentrated in one customer class. Residential sales are essentially flat, at 1,515 billion kilowatthours in 2025, 1,514 billion in 2026 and 1,530 billion in 2027 [1]. Commercial sales, the category that captures data centers, rise from 1,494 billion to 1,545 billion to 1,609 billion over the same three years, and industrial sales rise from 1,042 billion to 1,064 billion to 1,106 billion [1]. Total generation by the electric power sector in the first half of 2026 was up 37 billion kilowatthours, or 1.8%, from the first half of 2025, with solar output up 21% and wind up 6% [1].
| U.S. electricity sales (billion kWh) | 2025 | 2026 forecast | 2027 forecast |
|---|---|---|---|
| Residential | 1,515 | 1,514 | 1,530 |
| Commercial (includes data centers) | 1,494 | 1,545 | 1,609 |
| Industrial | 1,042 | 1,064 | 1,106 |
| All sectors | 4,058 | 4,130 | 4,251 |
Source: EIA Short-Term Energy Outlook, August 2026, Table 7b [1].
The regional detail is telling. The West South Central region, dominated by Texas, is forecast to grow from 746 billion kilowatthours in 2025 to 765 billion in 2026 and 829 billion in 2027, the largest increase of any region [1]. Even that figure was cut in August: after the Texas governor announced a pause on new data center development on August 3, EIA lowered its forecast for Texas load growth in 2027 to 6% from 14% in the previous outlook [1]. The pause is meant to give regulators time to review projects under consideration, and it is a reminder that grid connections, not chips, are the constraint on how fast the data center build-out can proceed.
Why utility stocks have lagged the demand story
Interest rates
Regulated utilities are valued like long-duration bonds with a growth component, so their multiples move inversely with long-term yields. The 10-year Treasury yield ended 2025 at 4.18%, closed June 30 at 4.44% and stood at 4.68% on August 12, 2026 [4]. A 50 basis point rise in the risk-free rate over seven months raises the return investors require from a utility paying a 3% dividend and growing earnings at a mid-single-digit rate. That alone explains a flat year for the sector.
Regulation caps the upside
A regulated utility earns an allowed return on the capital it invests, set by state regulators. New data center load lets it invest more in substations, transmission and generation, which grows the rate base, but the return on that capital is fixed in advance. A data center customer that spends $10 billion on a campus does not hand the utility a share of that spending; it hands the utility a long-term load that justifies a larger regulated asset base. That is a good business, but it is a steady one, and its earnings growth is measured in single digits.
Independent power producers are different. Their unregulated plants sell electricity at market prices or under negotiated long-term contracts, so tight supply flows directly into margins. Constellation Energy (CEG), the largest owner of nuclear generation in the United States, reported adjusted operating earnings of $2.55 per share for the second quarter of 2026 and raised its full-year guidance to $11.50 to $12.50 per share; its nuclear fleet produced 44,160 gigawatt-hours in the quarter at a 93.0% capacity factor, and it signed an additional 920 megawatts of long-term power purchase agreements running 15 to 20 years and starting between 2029 and 2032 [2]. Vistra (VST) reported ongoing operations adjusted EBITDA of $1,767 million for the quarter, up more than 30% from $1,349 million a year earlier, reaffirmed 2026 adjusted EBITDA guidance of $6.8 billion to $7.6 billion, and announced Helix Digital Infrastructure, a data center venture with KKR, KIA and Nvidia (NVDA) to which it committed up to $1.0 billion [3]. Vistra also reported that about 100% of its expected 2026 generation and 94% of 2027 generation is hedged [3].
Valuation of the utilities sector in August 2026
The sector has become cheaper on trailing earnings as prices stalled and profits rose. DataPorium's sector P/E series for Nasdaq-listed companies puts the utilities multiple at 24.4 on August 12, 2026, down from 27.4 on June 26 and 26.5 on July 7 [5]. That compares with 46.3 for Technology, 22.5 for Healthcare and 17.1 for Energy on the same date [5]. Readers can follow the daily series on DataPorium's stock market page and screen individual utilities by yield and payout on the stock screener [5].
A multiple in the mid-20s is still high by the sector's own history, and it embeds an assumption that rate-base growth will stay elevated for years. What investors may consider is the split within the sector:
- Regulated utilities offer visible but capped growth, and their prices are most sensitive to Treasury yields [4].
- Nuclear and gas generators with unregulated capacity capture scarcity pricing and long-term contracts directly, as the Constellation and Vistra results show [2][3].
- Policy can slow the load growth that both groups rely on, as the Texas pause and EIA's downward revision demonstrate [1].
- Natural gas, the marginal fuel for much of the new generation, is forecast by EIA to average $3.44 per million Btu at Henry Hub in 2026 and $3.31 in 2027, which keeps the cost of new gas-fired supply low [1].
What would change the picture
Two things would lift utility stocks relative to the market: a decline in long-term yields, or evidence that regulators are approving higher allowed returns to fund the build-out. Neither is in the August data. The 10-year yield has risen, not fallen, and the most visible regulatory action of the month was a pause rather than an approval [1][4]. On the other side, the demand forecast keeps rising outside Texas, and the power producers with contracted nuclear output are reporting earnings growth that regulated names cannot match [2][3]. The trade, in other words, has split: the electricity demand thesis is intact, but it is paying the generators rather than the wires companies.
Data center demand is real and growing in EIA's forecasts, but higher Treasury yields and fixed regulated returns have kept utility stocks flat while the unregulated generators collect the benefit.
Key takeaways
- EIA projects U.S. electricity sales of 4,130 billion kWh in 2026 and 4,251 billion in 2027, with commercial demand growing 3.5% and 4.1% [1].
- XLU closed at $44.04 on August 12, 2026, up 2.0% for the year, while the 10-year Treasury yield rose from 4.18% to 4.68% [4][5].
- Constellation raised 2026 guidance to $11.50 to $12.50 per share and Vistra grew adjusted EBITDA more than 30% to $1,767 million [2][3].
- EIA cut its 2027 Texas load growth forecast to 6% from 14% after the state paused new data center development on August 3 [1].
- The utilities sector trades at a trailing P/E of 24.4, down from 27.4 in late June [5].
Frequently asked questions
Why are utility stocks down in 2026 despite data center demand?
Higher long-term interest rates, with the 10-year Treasury at 4.68% on August 12 versus 4.18% at year-end, have raised the return investors require from regulated utilities, whose allowed returns on new investment are fixed by regulators [4].
How much will U.S. electricity demand grow because of data centers?
EIA forecasts total electricity sales rising from 4,058 billion kWh in 2025 to 4,130 billion in 2026 and 4,251 billion in 2027, with commercial-sector sales, which include data centers, rising 3.5% and 4.1% [1].
Which utility stocks benefit most from the AI power trade?
Unregulated generators with nuclear and gas capacity such as Constellation Energy and Vistra capture market pricing and long-term contracts directly; Constellation raised 2026 guidance to $11.50 to $12.50 per share and Vistra grew adjusted EBITDA more than 30% in Q2 2026 [2][3].
What did the Texas data center pause do to demand forecasts?
After the August 3 announcement, EIA lowered its forecast for Texas electricity load growth in 2027 to 6% from 14% in its previous outlook [1].
Sources & References
- [1] U.S. Energy Information Administration, Short-Term Energy Outlook, August 2026 (released August 11, 2026)
- [2] Constellation Reports Second Quarter 2026 Results (SEC Form 8-K exhibit, August 6, 2026)
- [3] Vistra Reports Second Quarter 2026 Results (August 7, 2026)
- [4] 10-Year Treasury Constant Maturity Yield (DGS10), FRED, Federal Reserve Bank of St. Louis
- [5] DataPorium Stock Market Analytics (XLU price history and utilities sector P/E)
