According to Morgan Stanley, even if President Donald Trump’s trade war caused a recession, electricity demand should be resilient. “We believe that the trend in electricity demand is more durable than previous cycles due to the inelasticity of data center demand,” an analyst led by Andrew Percoco told clients in a memo on Monday. “Industrial demand could fall short, but manufacturing reuse is a long-term tailwind.” Wall Street’s bullish outlook for electricity demand has been a key pillar of many energy stock investment cases over the past 12 months. For example, Morgan Stanley believes that the electricity consumption of artificial intelligence, which has grown ten times by 2028, accounts for roughly 8% of U.S. electricity demand. The bank confirmed that the United States has entered unknown waters. “With this in mind, we don’t want to minimize the risk of short-term ‘shocks’ of demand,” Percoco said. This could lead to slower ordinal growth for some companies. TLN 1Y Mountain Talen Energy Stock Performance, but the recession has generally not had a major impact on electricity demand. Since 1960, investment banks have shown that demand has fallen on average only 0.2% during the economic downturn. The 2008 global financial crisis had the greatest effect, with electricity demand falling by 4.2%. “Utility is a preferred screen in a recession given its defensive nature,” Percoco said, referring to stocks such as integrated Edison, Southern Company, Duke Energy and accompanying energy. The utility sector has outperformed the S&P 500 by about 12% so far this year. Morgan Stanley sees strong expenditure signs on Meta, Amazon and Alphabet’s AI infrastructure. According to bank internet analyst Brian Novac, Hyperschool wants to advance its early lead in AI, and has a large product pipeline that requires GPUs. Banks prefer stocks exposed to the utility sector over housing. Top picks include First Solar, Shoals Technologies Group, gas turbine manufacturers Ge Ververnova and Bloom Energy. VST 1Y Mountain Vistra Stock Performance First Solar has dropped by around 28% this year, Shoals has dropped by 38%, Bloom has pulled back by nearly 20%, and Ge Ververnova has dropped by nearly 3%. While independent electricity producers such as Talen and Vistra are more exposed during the recession, Morgan Stanley continues to be purchased in both stocks in potential data center trading. Taren is essentially flat for the year, and after a pair that has more than tripled in value last year, Vistra has dropped by more than 16%. Get tickets for Pro Live Join us on the New York Stock Exchange! An uncertain market? Earn Edge with CNBC Pro Live, the first exclusive event on the historic New York Stock Exchange. Access to expert insights is paramount in today’s dynamic financial situation. As a CNBC Pro subscriber, we encourage you to take part in the first exclusive, in-person CNBC Pro live event held at the iconic NYSE on Thursday, June 12th. Join ProSCarter Worte, an interactive pro clinic led by Dan Niles and Dan Ives, along with a special edition of Pro Talks with Tom Lee. You will also get the opportunity to network with CNBC experts, talent and other pro subscribers during exciting cocktail hours on the legendary trading floor. Tickets are limited!
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