The honeymoon between artificial intelligence and electric utilities is ending faster than Wall Street expected.
For months, investors piled into utility stocks on the premise that AI data centers would drive massive electricity demand and boost earnings. But according to OilPrice.com, that narrative has shifted dramatically. "Electric utility stocks seem to have tapered off, after all the hoopla about how demand from AI would transform the business turned into concern that demand from AI would raise prices to consumers and rile the politicians who set the rates," the outlet reported on January 21.
The problem is structural. OilPrice.com explained that "Wall Street focuses most on one number in utility financial valuation nowadays, the growth of rate base, because regulators set earnings as a percentage of rate base." In other words, utilities can't simply pass AI-driven costs to consumers without regulatory pushback. That's creating a fundamental tension between the sector's growth prospects and its ability to actually profit from them.
This cooling sentiment comes as the broader energy sector grapples with competing pressures. On the oil side, Reuters reported on January 21 that the "world oil market faces significant surplus in first quarter," according to the International Energy Agency. Meanwhile, natural gas markets are moving in the opposite direction—Reuters noted on January 21 that "global LNG supply set to jump in 2026, limiting prices and spurring demand," suggesting oversupply could pressure margins across the energy complex.
The LNG Dispute That Signals Deeper Tensions
The energy sector's growing pains are also playing out in contract disputes. According to the Financial Times on January 21, US LNG exporter Venture Global prevailed in a dispute with Spanish energy group Repsol over supply contracts. The FT reported that Repsol had "accused US LNG exporter of breaching deal to profit from market turbulence during Ukraine invasion." The case underscores how volatile energy markets have become and how companies are increasingly willing to litigate over pricing disagreements.
Natural Gas Rallies on Winter Weather
While oil and LNG face supply pressures, natural gas is telling a different story. According to Natural Gas Intel on January 21, "expectations for steep storage reductions in coming weeks, driven by multiple rounds of particularly harsh winter weather, powered natural gas futures even higher on Wednesday and lengthened the year's first major rally." The outlet reported that "natural gas bulls on parade" were driving prices "toward $5," suggesting that weather-driven demand could provide near-term support for the sector.
The Broader Geopolitical Backdrop
Energy markets are also being reshaped by geopolitical shifts. Reuters reported on January 22 that "Valero buys Venezuelan oil cargo as part of Washington's deal with Caracas," marking a significant development in US-Venezuela energy relations. Additionally, Reuters noted on January 22 that "India's Reliance to buy sanctions-compliant Russian oil in February and March," highlighting how global energy flows continue to realign despite sanctions regimes.
What It Means for Investors
The divergence between utility stocks and traditional energy plays reflects a fundamental reassessment of AI's economic impact. While the technology promises to transform grid operations and energy efficiency, the near-term reality is that massive data center buildouts will strain existing infrastructure and potentially drive up consumer electricity costs—a politically sensitive outcome.
For utilities, the challenge is clear: they need to grow their rate base to satisfy investors, but regulators won't allow unlimited rate increases to fund AI-driven infrastructure expansion. That's why utility stocks have lost their luster as an "easy AI trade," as OilPrice.com put it.
Meanwhile, traditional energy sectors are navigating their own crosscurrents—oil facing surplus conditions, LNG supply ramping up, and natural gas benefiting from winter weather. The energy transition isn't playing out as a simple story of AI-driven electrification. It's messier, more contested, and increasingly shaped by regulatory and geopolitical constraints that no algorithm can fully predict.
Reporting based on coverage from OilPrice.com, Reuters, Financial Times, Natural Gas Intel, and CNBC.