KeyBanc said investors should be selective in utility stocks in 2025 as the incoming Trump administration could create a more challenging environment for the industry. Analyst Sophie Karp told clients in a note this week that the utility sector has gained nearly 25% this year as investors realize that increased power demand from artificial intelligence is not a blip. Artificial intelligence has translated into revisions to tangible power load and earnings growth for the industry, Karp said. Utilities have also benefited from stabilizing interest rates and inflation this year. But the industry may face headwinds from the inflationary policies favored by the incoming Trump administration, Karp wrote. The analyst told clients that if inflation stalls at above-average levels and then accelerates, the Fed may respond with higher interest rates, which would hit the industry. At the same time, the return of artificial intelligence and manufacturing to U.S. power demand could help offset inflationary headwinds in the sector, Karp said. “As the macro environment becomes more complex, we have become more selective in our selection of overweight holdings and have narrowed our focus to a few value stocks and companies best positioned to benefit from positive industry trends,” Karp told clients. KeyBanc maintains its outlook for investors Regulatory utilities Xcel Energy, WEC Energy Group, CMS Energy Corp., FirstEnergy Corp. and Portland General Electric have buy ratings. The bank views Xcel, WEC and CMS as high-quality companies capable of capturing growth opportunities, while FirstEnergy is a value pick that will benefit from resolution of Ohio’s regulatory process. KeyBanc sees Constellation Energy as a stock that could benefit from trends in U.S. power demand for artificial intelligence, as its nuclear assets become increasingly attractive to technology companies.
