AI utility stocks are the companies that are in the conventional utility business supplying fundamental commodities such as electricity, water and natural gas but have also made significant investments in AI and machine learning (ML) to reinvent themselves.
I’m a big fan of these picks since they combine the low beta and high income of the utility sector together with the growth tailwind of the ever-growing rise of AI to boost profits and efficiency, and I think we’ve only started to tap into this trend.
So here are three AI utility stocks for investors to consider this month.
Xcel Energy (XEL)
Xcel Energy (NASDAQ:XEL) provides electricity and natural gas services to customers across eight states in the U.S.
I am quite amazed with how Xcel Energy has been implementing the use of AI and digital transformation in the company. This approach is quite aggressive, since to solve the problem, the company chose one of the most complicated and regulated spheres – nuclear power. First, Xcel applied AI and automation to the improvement of its nuclear safety, thus mobilizing $15 million of annualized savings that could be used to support the achievement of the company’s carbon neutrality vision.
Crucially, they have also been able to reinvest over 70,000 hours of manual work to the business which would otherwise have been expended on non-core activities.
This investment in AI has added to the bullish sentiment surrounding the stock. It has been on a rocket ship for the past ten years, more than doubling in value. This makes XEL one of those AI utility stocks to consider, especially since it can be scooped up at a bargain as it trades at 16x times earnings, near a historical low.
PG&E (PCG)
PG&E (NYSE:PCG) is integrating AI to enhance its grid management and wildfire prevention efforts.
PCG has a number of things going for it. The consensus on the stock from Wall Street analysts is that it’s a buy, and there are also accretive revenue and earnings per share (EPS) estimates given for the stock. However, the company’s focus on AI and advanced camera systems is also part of my buy recommendation on the stock. Using a growing number of high-definition cameras and testing the AI-based smoke detection features, the company is proving its readiness to use the most advanced tools to prevent wildfires and deal with them.
The initial outcomes of PG&E’s AI pilot projects are rather positive. It is already able to identify smoke and the possibilities of a fire outbreak one or two minutes before normal human eyes can, thus giving the company’s Wildfire Safety Operations Center ample time to come to the rescue. This could be a revolution in the making, especially given that the wildfire season in California continues to be more and more unpredictable and disastrous.
PCG making inroads into AI early could be very accretive for the company, as it uses it for disaster mitigation strategies that may lower maintenance costs over time, thus allowing for more cash flow to be returned to investors.
Sempra Energy (SRE)
Sempra Energy (NYSE:SRE) is a company that is loved by Wall Street analysts. It carries a strong buy rating.
Also, the strategic collaboration with the National Renewable Energy Laboratory (NREL) was one of the reasons I have a buy recommendation on Sempra Energy’s stock in the past through a memorandum of understanding.
The MOU spelled out strategies for artificial intelligence for clean energy objectives, hydrogen and renewable natural gas, and microgrid and grid improvement strategies.
There are a few reasons I like SRE more than NVDA stock, namely because it trades at a far lower valuation than the chip maker’s 74x times earnings. Comparatively, SRE trades at just 17x, and has a far less volatile growth trajectory due to being in utilities. Holding SRE for the long run then could give investors more certainty in the possible distribution of returns, while NVDA’s volatility may give investors a wild ride.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.