FirstEnergy reported higher second-quarter profit on Thursday, driven by a sharp increase in demand from data centers in its service territory. The utility said contracted and pipeline data center demand jumped 30% since the first quarter, even as adjusted earnings per share came in slightly below Wall Street forecasts.
Data center boom fuels utility growth
U.S. utilities are increasingly tied to Big Tech's massive buildout of data centers, which are power-hungry facilities that can draw as much electricity as a mid-sized city. FirstEnergy, which serves about 6 million customers across Ohio, Pennsylvania, New Jersey, West Virginia, and Maryland, is one of several regional utilities benefiting from this trend.
The company's results reflect a broader shift in the energy sector, where demand from data centers is reshaping growth expectations. Other firms, such as S&P Global, have also expanded into data center research, highlighting the sector's importance to investors.
Earnings details and market reaction
FirstEnergy's adjusted earnings per share narrowly missed analyst estimates, though the company did not disclose the exact figure in its preliminary release. The miss was small enough that investors focused instead on the strong demand outlook. The stock moved modestly in after-hours trading as the market digested the mixed report.
The utility's core business remains stable, with regulated operations providing a steady stream of revenue. But the data center boom is adding a new growth driver that could lift earnings in coming years. FirstEnergy's pipeline of data center projects now includes both signed contracts and projects under negotiation, giving the company visibility into future demand.
What it means for investors
For everyday investors, FirstEnergy's results underscore a key theme: the rise of artificial intelligence and cloud computing is creating new demand for electricity, and utilities are among the beneficiaries. Data centers require massive amounts of power for servers, cooling, and backup systems, and that demand is expected to grow as more companies build out AI infrastructure.
However, investors should note that utilities are heavily regulated, and their profits are tied to rate cases and capital spending plans approved by state regulators. The data center boom may lead to higher capital expenditures, which could pressure near-term cash flows even as long-term earnings grow.
FirstEnergy's 30% jump in data center demand since the first quarter is a significant acceleration. For context, the company had already reported strong interest from data center developers in early 2024. The latest figure suggests that the pace of new projects is picking up, not slowing down.
Other companies in the AI supply chain have also reported strong demand. For instance, NXP Semiconductors recently beat sales forecasts as AI demand expanded beyond data centers, while Teradyne saw AI chip testing demand drive its revenue forecast above estimates. These trends reinforce the idea that the AI buildout is broad-based and likely to persist.
Outlook and risks
FirstEnergy's management is expected to provide more detail on its data center pipeline and capital spending plans during its earnings call. Investors will be watching for updates on how much new capacity the company plans to add and how quickly those projects can come online.
One risk is that data center demand could slow if the AI boom fades or if tech companies shift to more energy-efficient designs. But for now, the trend is clearly positive for utilities with exposure to regions where data centers are being built. FirstEnergy's position in the Midwest and Mid-Atlantic puts it near major internet hubs and fiber networks, making its territory attractive for new facilities.
The utility also faces regulatory and environmental hurdles. Building new power lines and substations to serve data centers can take years and requires approval from multiple state and federal agencies. FirstEnergy will need to navigate those challenges to turn its pipeline into actual revenue.
For investors, the key takeaway is that FirstEnergy is riding a powerful wave of demand from the digital economy. The slight earnings miss is a minor blemish on an otherwise strong quarter, and the data center growth story remains intact. As always, investors should consider their own risk tolerance and portfolio diversification before making any decisions.
