This Undervalued Utility Stock Could be Your Next Big Bet

Utility stocks have quietly emerged as one of the best-performing sectors over the past few months, surprising many investors. This sector is now the top-performing segment of the S&P 500 in the second quarter.

So, what’s fueling this rally? Many point to the AI boom.

• Utilities is the top-performing sector so far in 2024, benefitting from the AI boom.
• AES Corp (NYSE: AES) is well-positioned to capitalize on the Utility-AI trend.
• Despite the rally, AES remains below its intrinsic value.

Saqib Iqbal, a financial analyst at Trading.biz, weighs in on the situation. “The increased power requirements of AI tech largely drive the surge in utility stocks. Companies like Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) are investing heavily in AI, leading to increased power demands.

Utilities, especially those focused on clean energy and nuclear power, will see significant gains as the AI sector expands. And I see AES Corp (NYSE: AES), well-positioned to benefit from this trend.”

AES Corp operates power plants using a mix of coal, gas, hydro, wind, solar, and biomass to generate electricity. It’s among the biggest players in building wind and solar farms, selling power to tech giants like Alphabet GOOGL (NASDAQ) and Microsoft (NASDAQ: MSFT).

AES has multiple contracts with Microsoft, including supplying its data centers in Virginia with round-the-clock clean power and operating wind and solar farms for the company in Chile.

Despite the recent rally in the utility stocks, AES is still undervalued. The company is trading below its intrinsic value of $25, 16% below the current price. Additionally, AES presents a good value based on its price-to-earnings ratio of 26.26, compared to the US market average of 29.25.

So, when you combine all the factors, AES is worth watching as the AI-Utility combo will play a significant role in the economy. AES stands out as a strategic investment and will likely continue to the upside rally.