U.S. utilities stocks are ending 2025 with a split personality. On one hand, the group is still a classic “defensive” trade—regulated cash flows, dividend support, and historically lower volatility than the broader market. On the other, utilities have quietly become one of the most important “real economy” beneficiaries of the AI boom, because every new data center and electrified industrial process ultimately needs one thing: reliable megawatts.
With U.S. markets closed for the Christmas holiday on December 25, 2025, the utilities sector enters 2026 under intense scrutiny from investors, regulators, and consumers. Electricity bills are rising, grid operators are sounding alarms about supply shortfalls, and analysts are debating which companies can grow their rate base without triggering political backlash. The result: utilities stocks are no longer just about yield—they’re increasingly about infrastructure, load growth, and execution risk.
Where Utilities Stocks Stand on December 25, 2025
A clean way to take the sector’s pulse is through the Utilities Select Sector SPDR ETF (XLU), a widely watched benchmark proxy for U.S. large-cap utilities.
State Street Global Advisors’ fund data shows XLU’s profile at year-end as a blend of income and “steady growth” fundamentals:
- 31 holdings in the Utilities Select Sector Index universe
- Forward P/E (FY1): ~19.59 and Price/Book: ~2.34
- Fund distribution yield: ~2.72% and 30-day SEC yield: ~2.77% (as of late December)
- Largest weights include NextEra Energy, Constellation Energy, Southern Company, Duke Energy, American Electric Power, Sempra, Vistra, Dominion, Exelon, and Xcel Energy (with NextEra the top holding at ~12–13%). [1]
That composition matters for 2026. It means “utilities” in today’s market is not just wires-and-poles regulated monopolies. It also includes competitive power generators and clean-energy operators—business models that can outperform when power prices spike, but can also swing more sharply when fundamentals change.
The Big Driver for 2026: Electricity Demand Is Surging—and the Grid Is Struggling to Keep Up
The utilities bull case heading into 2026 rests on one central claim: load growth is back after decades of sluggish demand. And in multiple regions, it’s accelerating faster than planning and permitting cycles can comfortably absorb.
Forecast: U.S. power demand is heading to records
Reuters reporting on the U.S. Energy Information Administration (EIA) outlook points to a step-up in consumption:
- U.S. power use is expected to hit record highs in 2025 and again in 2026, driven by factors including data centers and electrification. [2]
That’s not just a macro headline—it becomes a capital spending story. When demand rises, utilities seek to expand generation, transmission, and distribution assets, and (in regulated models) earn an allowed return on that growing “rate base.”
Data centers: from tech trend to utility-sector engine
Multiple recent analyses have converged on the same conclusion: the AI buildout is forcing a rethink of the U.S. power system.
- Reuters Events reporting cites S&P Global estimates that utility power supplies to U.S. data centers could jump 22% in 2025 to 61.8 gigawatts, and rise to 134.4 gigawatts by 2030—a scale that rewrites many utilities’ long-term capital plans. [3]
In other words, utilities stocks are increasingly being priced not just on dividend stability, but on whether they can win and execute multi-billion-dollar, multi-decade buildouts tied to data center load.
December 2025 Utility-Rate Reality: Higher Bills Are Becoming a Political Story
Utilities can grow earnings by investing—if regulators allow cost recovery. That’s where the sector’s opportunity collides with its biggest constraint: customer affordability.
The inflation data: electricity and gas are still rising
The Bureau of Labor Statistics’ latest CPI summary shows:
- Electricity prices up 6.9% over the last 12 months (ending November 2025)
- Utility (piped) gas service up 9.1% over the same period [4]
Those are meaningful increases for households—and they shape the political environment in which 2026 rate cases will be argued.
EIA view: electricity prices expected to keep climbing through 2026
EIA’s analysis notes that retail electricity prices have been rising faster than inflation since 2022 and are expected to continue increasing through 2026, reflecting infrastructure investment needs and other costs embedded in delivered power. [5]
This is one reason utilities stocks are drawing attention from both income investors (who like predictable cash flows) and growth investors (who see rate-base expansion). But it also raises the risk that regulators and lawmakers become more aggressive in challenging future increases.
PJM’s Capacity Shock: A Late-2025 Warning Signal for Utilities and Power Stocks
One of the most important utilities-related stories heading into 2026 isn’t a single company—it’s what’s happening in the biggest U.S. grid markets.
Reuters reported that PJM Interconnection—the largest U.S. grid operator—posted another round of record-high capacity prices in December, explicitly tying the jump to data center demand overtaking supply:
- Capacity prices reached $333.44 per megawatt-day in the latest auction
- Reuters described the increase over roughly two years as about 1,000%
- Some areas in PJM territory have already seen utility bills rise more than 20% starting from last summer
- PJM’s auction results also showed a supply shortfall versus its reliability requirement, reinforcing the urgency of new capacity and grid investment [6]
For utilities stocks, PJM is a double-edged signal:
- It supports the long-term investment case (scarcity and reliability needs justify spending).
- It increases the probability of regulatory and political pushback as customers feel higher bills.
It also explains why merchant power names tied to PJM can surge on capacity revenue expectations—Reuters noted windfall dynamics for existing generators in the region. [7]
A Christmas-Day Question: Could “Using the Grid Better” Lower Bills?
One of the most-discussed utilities pieces published today (Dec. 25) focuses on an underappreciated idea: the grid is built for peak demand and often runs well below its maximum capacity.
The Washington Post reported that grid utilization is frequently around half of capacity, and highlighted research suggesting the U.S. could potentially serve large new loads—like data centers—more cheaply if those loads agree to curtail during a small number of peak-stress days. The article also cites a forecast that peak electricity demand could rise by nearly 24% over the next five years and discusses estimates of roughly 100 gigawatts of “extra” grid power that could be tapped under curtailment-style arrangements. [8]
For utilities investors, this matters because it points toward a 2026 theme that isn’t purely about building more steel in the ground:
- Flexible demand contracts
- Load management and “interruptible” data center agreements
- New tariff structures and grid services
If regulators and utilities can successfully push these models, it could reduce the pace of capex required—potentially easing political pressure—while still allowing utilities to monetize system value.
Fed Rate Cuts: Utilities Are Still “Rate Sensitive,” Even in an AI-Driven Market
Utilities stocks have always been linked to interest rates because their dividends compete with bond yields, and because utilities fund huge capital programs with debt.
Reuters reported that the Federal Reserve delivered a 25-basis-point cut on December 10, 2025 and signaled fewer cuts ahead, with the median projection pointing to just one cut in 2026. [9]
That setup creates two plausible 2026 regimes:
- A “gentle easing” regime
Lower rates (or even stable rates) can support utility valuations and reduce financing strain, especially for companies with large capex roadmaps. - A “higher-for-longer surprise” regime
If inflation stays sticky, rates stay elevated, and utilities can face valuation pressure plus higher interest expense—just as they need to borrow heavily to expand the grid.
Barron’s recently highlighted this tension: utilities had lagged since mid-October as investors chased higher-risk sectors, but the group’s valuation looked less demanding versus the broader market, with analysts also pointing to a utility earnings growth profile supported by long-term demand themes. [10]
What Analysts Published on December 25, 2025: The Market’s Utility Stock Debate in Real Time
Despite the holiday, several strategy notes and single-name writeups hit the tape today—useful not because any one report is “the answer,” but because they show what themes investors are actively sorting.
Utility ETFs: “Bills are rising, but the sector has near-term pain”
An Investing.com analysis published today argues that the utilities sector has been weak over the past month, but could have structural tailwinds as the calendar turns to 2026—citing the idea that higher utility bills can flow through to sector revenues and cash flows. [11]
Company spotlight: Algonquin Power & Utilities (AQN)
MarketBeat’s Dec. 25 writeup notes:
- A consensus “Hold” stance among the analysts it tracks
- A quarterly dividend of $0.065 per share (annualized $0.26) and an indicated yield around 4% (based on the article’s pricing context) [12]
Company spotlight: Eversource Energy (ES)
A Simply Wall St analysis published today frames Eversource as a potential value/rebound story after a 2025 improvement, using valuation screens and cash-flow modeling to argue the stock may still have upside—while acknowledging utilities’ dependence on rates and regulatory outcomes. [13]
Company spotlight: PG&E (PCG)
A Seeking Alpha analysis published today describes PG&E as an “undervalued utility” tied to a grid modernization and capex plan, highlighting a low valuation multiple in the writeup and projecting a path toward stronger shareholder returns—while the legacy wildfire/liability backdrop remains central to how investors discount the name. [14]
Taken together, these same-day publications reinforce the sector’s core 2026 positioning: utilities are being re-rated around grid investment and demand growth—but investors are selective, and balance-sheet/regulatory risk is still the gatekeeper.
Global Utilities Stocks: Regulation Still Sets the Ceiling
For global utilities investors, the biggest variable is often not demand—it’s what regulators allow companies to earn on networks.
Reuters reported that Spain’s regulator set out a proposed financial return for power grids for 2026–2031 at 6.58%, above the prior period’s 5.58%—a reminder that allowed returns can materially change the earnings outlook for regulated network owners. [15]
These regulatory return resets are one reason global utilities often trade more like “policy assets” than pure growth equities.
The 2026 Utilities Stocks Checklist: What to Watch Next
Utilities stocks can look calm on the surface while their fundamentals shift underneath. Here are the signposts most likely to drive the next leg—up or down:
- Treasury yields and Fed messaging: utilities can rally even without big earnings surprises if the rate backdrop turns supportive. [16]
- Grid-operator stress signals: PJM’s pricing and reliability warnings are shaping investor expectations for capex, power prices, and political scrutiny. [17]
- Data center contracting behavior: the market will reward utilities that lock in bankable data center commitments (and penalize those that build ahead of demand). [18]
- Affordability backlash risk: electricity inflation is visible in official data, raising the odds of tougher regulatory negotiations. [19]
- Demand flexibility and curtailment deals: if utilities can monetize unused grid capacity with smart contracts, it could reshape capital needs and returns. [20]
Bottom Line: Utilities Stocks Are No Longer “Just Defensive”
On December 25, 2025, utilities stocks sit at the center of a new market narrative: AI doesn’t just run on chips—it runs on power. Forecasts for rising electricity demand, visible stress in capacity markets, and a wave of grid spending are pushing the sector into a rare position where it can plausibly offer both:
- Defensive characteristics (essential service, regulated cash flows, dividends), and
- Structural growth drivers (data centers, electrification, grid modernization).
The tradeoff is that utilities may face louder resistance in 2026 than in prior cycles—because the same investments that build a stronger grid are also showing up in consumers’ monthly bills. And in utilities, politics and regulation can move the share price just as much as earnings.
If you want, I can tailor this into (1) a Google Discover-friendly shorter version (~650–800 words) or (2) a deep-dive focused on the top U.S. utility stocks and ETFs most exposed to data center demand—still without charts or images.
References
1. www.ssga.com, 2. www.reuters.com, 3. www.reuters.com, 4. www.bls.gov, 5. www.eia.gov, 6. www.reuters.com, 7. www.reuters.com, 8. www.washingtonpost.com, 9. www.reuters.com, 10. www.barrons.com, 11. www.investing.com, 12. www.marketbeat.com, 13. simplywall.st, 14. seekingalpha.com, 15. www.reuters.com, 16. www.reuters.com, 17. www.reuters.com, 18. www.reuters.com, 19. www.bls.gov, 20. www.washingtonpost.com
