Morgan Stanley analysts see PG&E well-positioned to benefit from escalating data center power demands in 2026, driven by California’s AI and tech expansion. Despite a recent price target cut to $20, the utility’s 9.6 GW pipeline and $73 billion infrastructure plan signal strong earnings potential, balancing risks with growth opportunities.
PG&E’s Strategic Edge in Powering the Data Center Revolution
PG&E Corporation, trading under the ticker PCG on the NYSE, currently holds a market capitalization of approximately $33.6 billion, with shares closing at $15.77 in the latest session. As one of the largest utilities in the United States, serving over 16 million customers across northern and central California, the company is at the epicenter of the nation’s tech innovation hub. This geographic advantage places PG&E in a prime spot to capitalize on the explosive growth in artificial intelligence and cloud computing, which are fueling unprecedented electricity demands from data centers.
Morgan Stanley’s latest analysis maintains an Equal Weight rating on PCG, with a revised price target of $20, implying potential upside of more than 26% from current levels. Analysts emphasize that U.S. utilities, including PG&E, are entering a favorable cycle in 2026, where data center expansions will drive load growth and tighten grid capacity. California’s role as a global leader in AI development amplifies this trend, with projections indicating the state’s peak power demand could surge equivalent to powering an additional 20 million homes over the next 15 years, largely due to hyperscale data facilities operated by tech giants.
PG&E’s data center interconnection queue stands at 9.6 gigawatts, reflecting robust interest despite modest recent attrition of 400 megawatts. Of this pipeline, 1.6 gigawatts across 18 projects have advanced to final engineering stages, with several slated for operational startup as early as 2026. Company executives have highlighted that 95% of projects reaching this phase are expected to come online by 2030, underscoring a reliable pathway to revenue growth. To support this influx, PG&E has committed to a $73 billion capital expenditure plan through 2030, focused on grid modernization, transmission upgrades, and reliability enhancements. This investment not only accommodates new loads but also positions the utility to mitigate wildfire risks and integrate renewable sources, aligning with California’s aggressive clean energy mandates.
Financially, PG&E reported steady progress in its latest earnings, with adjusted earnings per share aligning with expectations amid ongoing cost recoveries from past regulatory approvals. The company’s balance sheet shows total assets exceeding $125 billion, bolstered by investments in electric and gas infrastructure. Revenue streams from data centers are particularly attractive, as they offer high-margin, long-term contracts that can offset residential rate pressures. Analysts note that for every gigawatt of data center load, PG&E could unlock billions in economic benefits for the state, including job creation and tax revenues, while spreading fixed costs across a broader customer base to potentially stabilize bills.
Despite these tailwinds, challenges persist. Softening in short-term data center demand has led PG&E to adopt a cautious “no big bets” approach, avoiding speculative expansions. Regulatory scrutiny on rate hikes remains a headwind, especially in an environment where electricity inflation is forecasted at 4-5% annually. Political risks, including affordability concerns and election-year dynamics, could influence rate case outcomes. However, Morgan Stanley views PG&E as relatively insulated compared to peers with higher exposure to contested markets, thanks to California’s supportive stance on tech infrastructure and data center incentives.
Competitively, PG&E stands out among regulated utilities like Eversource and Southern Company, which face varying degrees of data center dependency. In states like Texas and Pennsylvania, data center pipelines are larger, but California’s ecosystem—home to Silicon Valley—provides PG&E with a diversified tech clientele less vulnerable to single-sector shifts. Forward earnings estimates for PCG project mid-single-digit growth through 2026, supported by rate base expansion and efficiency gains from digital grid technologies.
Overall, the interplay of AI-driven demand and strategic capital deployment sets PG&E apart as a utility poised to transform power challenges into profitable opportunities.
Disclaimer: This article is for informational purposes only and is not intended as investment advice, news, report, or tips. All information is derived from publicly available sources.
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