By Nate Wolf

Much like Thomas Edison ushered in the era of electricity more than a century ago, artificial intelligence may be driving a new "Age of Electrification," analysts at Melius Research said Wednesday. That's good news for energy companies.

Independent power producers, or IPPs, are primed to be perhaps the biggest winners in this energy revolution, James West and Sanskriti Reddy of Melius wrote in a research note Wednesday. The firm initiated coverage of the IPPs Constellation Energy, Vistra, NextEra Energy, NRG Energy, and Talen Energy, assigning each of them Buy ratings.

West and Reddy's thesis is simple: AI computing requires data centers that use astounding amounts of power. The energy sector is therefore the "enabler" of the AI revolution.

"AI is a gold rush and Energy & Power, especially electricity, are the shovels," the pair wrote. "The transformation of Energy into Intelligence is one of the most profound economic shifts we will likely witness in our lifetimes, and the transformation is only in the initial phase."

As non-regulated utility power generators, IPPs may have a leg up on traditional regulated utilities in being able to adapt to data centers' immediate needs, Melius argued. IPPs can sell power to data centers through power purchase agreements and lock in years of cash flow. This level of stability should make IPPs trade like high-value infrastructure plays, the firm said.

It helps that data-center demand is set to explode. Data-center electricity demand growth is estimated to hit 219 gigwatts in 2030, up from 82 gigawatts in 2025, West and Reddy said. Demand may outstrip supply as soon as next year, they added.

Against this backdrop, the Melius team recommended every player in the IPP category, but said Constellation, NRG, and Vistra were its top picks. Each of those stocks were falling sharply Wednesday, but have gained at least 35% in 2025.

IPPs aren't the only potential winners, though. The Melius analysts also assigned Buy ratings to a host of oil-services companies, such as Halliburton and Schlumberger, and petroleum producers, such as Diamondback Energy and ConocoPhillips.

This bullishness was in part due to public sentiment shifting modestly away from clean energy and back toward oil and gas at time of heightened demand, the team argued.

"The modern economic system rests on hydrocarbons, and this will continue for decades if not centuries," West and Reddy wrote, calling the science of climate change "unsettled." (According to NASA, peer-reviewed scientific literature is near-unanimous that climate change is real and caused primarily by humans burning fossil fuels.)

Melius expects the consumption of natural gas -- which currently delivers about 50 to 60% of power to data centers -- to rise dramatically in the near term. But nuclear energy, which constitutes around 20% of data-center power, will overtake all other sources within the next two decades, the analysts argued.

"Nuclear provides reliable, 24/7 baseline electricity -- this is extremely important for data centers and manufacturing operations," West and Reddy said. They added that IPPs have an advantage here, too, because they often have a diversity of power sources available, such as renewables, natural gas, nuclear, and even geothermal energy.

Write to Nate Wolf at nate.wolf@barrons.com

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August 20, 2025 11:37 ET (15:37 GMT)

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