2024-05-31 15:32:20 ET
Summary
- Regulated utilities companies in the energy sector are expected to benefit from the growing demand for artificial intelligence (AI) and data centers.
- PG&E Corporation has a potential competitive advantage with its ownership of critical energy assets, but its inefficient capital base camps returns.
- My estimates are PCG is priced fairly at around $20 per share.
Investment Summary
Regulated energy utilities companies are expected to catch a strong tailwind from the world's insatiable demand for artificial intelligence ((AI)). If I think of the American energy landscape, for example, there are large capital outlays required on the infrastructure side. According to Greg Abel at the Berkshire Hathaway 2024 Shareholder Meeting, looking out until the mid-2030s, the underlying energy demand that's in place with AI and data centres is set to double. If we look beyond the 2030s, Abel says, the underlying demand triples.
The return on equity investment achieved by the electric utilities industry in recent years has been below the general return achieved by US businesses. Mountains of cash have been committed to the space, but only ant hills have been returned. In many instances, it is a case of " throwing good capital after bad capital "....
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For further details see:
PG&E: Capital Hungry Name Lagging Industry Margins