Several stocks are well-positioned to benefit from any power supply bottlenecks resulting from rapid growth in data centers, according to 11 analysts at TD Cowen who compiled a 169-page report. Following a decade of flat U.S. electricity load growth, generative artificial intelligence-driven data center demand and increasing electric vehicle adoption are driving a staggering acceleration in electricity demand, TD Cowen’s Michael Elias wrote in the report published Tuesday. That will lead to electricity transmission constraints in major power markets and population centers, with Northern Virginia, the world’s largest data center market, forecast to run out of reliable power in the winter of 2027 and Silicon Valley running out of reliable power in the summer of 2034, he noted. Elias said that third-party U.S. data centers will account for 6.6% of 2028 U.S electricity consumption, compared to just 1.5% in 2018, and 2.9% of 2028 global electricity consumption, compared to 0.8% in 2018. Despite the threat of shortages, the analyst said he has seen an “evolutionary response” from hyperscalers, including Amazon and Oracle , and third-party data center operators to secure the power needed to support generative AI workloads. As a result, they’re building data centers where power is available, investing in transmission lines and exploring the use of nuclear energy . “The hyperscalers facing these challenges are the among the best capitalized companies globally,” Elias said confidently, leaving “a path forward for the broader ecosystem to navigate the growing power constraints.” According to Elias, companies including Digital Realty Trust , NuScale , Vertiv , Wolfspeed and Coterra are among a basket of stocks that could benefit from data center demand and its implications, including the push toward greener energy sources less reliant on fossil fuels. Increasing data center leasing rates and power constraints in major markets will create an “increasingly positive” cash mark-to-market opportunity for Digital Realty , Elias said. That’s because incumbent players, like Digital Realty, will benefit as hyperscalers and enterprises are left with few alternatives to move latency-sensitive workloads — a kind of computational task that requires immediate processing and response, like AI inference — in these markets. “As an owner and operator of large footprint wholesale data centers globally, the scale of Digital Realty’s (DLR) data centers makes them suitable to host large AI workloads,” Elias said. “To that point, we have witnessed a surge in demand associated with data centers, which Digital Realty has been the beneficiary of as evidenced by its record 1Q24 bookings of $252.1 [million] that meaningfully surpassed its prior record leasing levels.” Digital Realty shares are up 6.7% this year, and analysts polled by FactSet think the stock can gain almost 3% from Tuesday’s close. Brookfield Renewable Partners , an international renewable power producer and developer, is another beneficiary of the data center boom. One catalyst: Brookfield’s partnership with Microsoft to develop new wind and solar farms to deliver more than 10.5 gigawatts of new renewable energy capacity between 2026 and 2030 in the U.S. and Europe as part of Micrsoft’s effort to become carbon neutral by 2030. “The recently signed framework agreement… is a clear example of BEP’s exposure to corporate [power purchase agreement] momentum associated with data center demand. In our view, this agreement is an endorsement of BEP’s ability to deliver a clean power solution to [a] tech bellwether at scale,” TD Cowen analyst Sean Steuart said. He expects Brookfield to grow its funds from operations per unit, REITs’ equivalent of earnings per share, at an organic rate of between 9% and 11%. Analysts surveyed by FactSet have a consensus buy rating and a $29.62 price target on Brookfield Renewable, implying 6.7% potential upside. The stock has added roughly 32% over the past month, fueled by the Microsoft partnership announcement on May 1, and is up about 5.6% so far this year. On the nuclear energy front, TD Cowen named NuScale Power Corp. a top pick. NuScale is the first pure play, publicly traded Small Modular Reactor designer, TD Cowen said, adding that it’s also the first to have a Nuclear Regulatory Commission design certification for its 50MWe power module. NuScale has almost tripled in 2024, climbing 188%, after collapsing 68% in 2023, as nuclear power — especially small modular reactors — has been seen as a way to satisfy increased electricity demand in an environmentally-friendly alternative to fossil fuels. Energy companies are also poised to benefit from the massive rise in electricity demand, the analysts said. According to TD Cowen’s David Deckelbaum, Coterra Energy , an exploration and production company, is “uniquely positioned to take advantage of increasing demand for natural gas” through its ability to navigate commodity price volatility by investing in the highest return wells across its three major basins, Permian, Appalachia and Anadarko. That will contribute to the energy supply needed to power data centers. According to the analyst, Coterra can see its free cash flow yield climb toward 12% in 2025 from 7% in 2024. Shares are up 8% for the year.
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