Bank of America has expressed a strong bullish outlook for the energy and utilities sector, driven by an ongoing boom in artificial intelligence (AI) that is expected to continue impacting markets into 2026. Analysts at the financial institution have identified specific utility stocks as prime investment opportunities, highlighting the growing demand for power essential to maintain rapidly expanding data centers and related infrastructure.
In a recent note, BofA noted that AI-driven demand is anticipated to be a significant growth driver for the energy sector. This demand is particularly notable in key regions like Texas and the Southwest, where data centers are increasingly concentrating. The analysts detailed several geographic areas, including California, northern Virginia, and the Midwest (specifically Illinois and Wisconsin), indicating that these markets will see enhanced energy needs as AI technologies become more prevalent.
Among the utility stocks deemed as top picks is Public Service Enterprise Group (PSEG), a New Jersey-based energy holding company focused primarily on electricity and natural gas distribution. Although PSEG’s stock has experienced a decline this year, analysts maintain a “Buy” rating with a price target of $95, citing the company’s stable regulated utility operations combined with its ownership of power generation assets.
Another significant pick is Alliant Energy Corporation, which serves clients in the Midwest and is positioned well to capitalize on its geographical advantage as data centers proliferate. BofA has set a price target of $74 for Alliant, maintaining a “Buy” rating, as the company is seen as undervalued despite its strong 2025 performance.
Sempra, an energy infrastructure firm operating mainly in California and Texas, is also on BofA’s radar. While the stock has seen a dip recently, it has still gained 18% over the last six months. BofA’s analysts believe the company will benefit from the stability of California’s robust data center market and the anticipated growth in Texas. A “Buy” rating is assigned along with a $99 price target.
Additionally, BofA highlighted Southwest Gas as a key player benefiting from increased power demands this year. The company, which focuses on the production, transportation, and distribution of natural gas, has experienced a stock rally. Analysts project that the ongoing boom in data centers will further propel the share price, assigning it an $84 price target and a “Buy” rating.
Lastly, Xcel Energy, which provides service to multiple states from its base in Minneapolis, has also been identified as a strong investment opportunity. BofA has set a price target of $84 and reported robust growth projections due to the ongoing development of data centers in its service areas. The company is expected to see growth rates of over 6-8% through the decade, further solidifying its position in the evolving energy landscape.
Overall, the sentiment from Bank of America underscores a broader trend in the financial markets where energy and utility stocks are increasingly viewed as essential components in the context of a growing AI economy.
