AI-Powered Utility Stocks: European Opportunities Highlighted by Morgan Stanley

This analysis is based on a Barron’s article [1] published on December 3, 2025, which reported Morgan Stanley’s identification of three European utility stocks—Centrica (CNA.L), RWE (RWE.DE), and Engie (ENGI.PA)—as undervalued beneficiaries of AI-driven electricity demand. On the article’s publication day, all three stocks outperformed the broader utilities sector: Centrica (CNA.L) +1.37%, RWE (RWE.DE) +0.80%, Engie (ENGI.PA) +0.65% vs. the sector’s +0.22719% gain [0].

Year-to-date (YTD) performance through December 3, 2025, shows strong growth for all three stocks: RWE.DE +48.24%, ENGI.PA +40.37%, and CNA.L +24.23% [0]. Financial metrics reveal RWE (P/E 12.38x, ROE 7.86%) and Engie (P/E 15.15x, ROE 11.07%) have positive profitability indicators, while Centrica has negative metrics (P/E -70.79x, ROE -3.07%) but notable 5-year growth (+274.95%) [0]. RWE also holds a 100% Buy analyst consensus, signaling market confidence [0].

Long-term context includes projections from Goldman Sachs [2] that AI data centers will drive exponential electricity demand growth, as tech companies seek low-carbon, reliable energy sources. This trend positions utilities globally to benefit beyond traditional demand drivers.

• Cross-industry AI impact
  : The AI-driven power demand surge extends beyond the tech sector, highlighting systemic market shifts that benefit utilities—an often-overlooked segment of the AI ecosystem.
• Defensive AI exposure
  : The utilities sector’s traditional defensive nature offers investors AI growth exposure with potentially lower volatility than pure AI tech stocks.
• Regional undervaluation
  : Morgan Stanley’s focus on European utilities highlights perceived undervaluation relative to U.S. peers, presenting a regional opportunity.
• RWE’s strong position
  : RWE’s top-tier YTD growth, favorable financial metrics, and 100% Buy consensus [0] indicate it is a market favorite among the three picks.

• Risks
  :
  1. Regulatory risk: Strict European regulations on energy prices, renewable targets, and grid access could limit profitability from AI data center contracts.
  2. Infrastructure risk: Upgrading grid infrastructure to meet AI data center demands requires significant capital investment.
  3. Competitive risk: Global utilities may compete for AI data center clients, reducing market share for European players.
  4. Financial risk: Centrica’s negative profitability metrics [0] suggest potential financial challenges.

• Opportunities
  :
  1. Long-term AI data center demand growth projected by industry analysts [2].
  2. Alignment with European renewable energy targets, supporting low-carbon energy solutions for data centers.
  3. Potential for stable, long-term contract revenues from tech companies.

• Event
  : Barron’s 2025-12-03 article on Morgan Stanley’s three European utility picks (CNA.L, RWE.DE, ENGI.PA) for AI-driven power demand [1].
• Performance
  : Publication-day outperformance vs. the broader utilities sector; strong YTD growth for all three stocks, with RWE leading at 48.24% [0].
• Financials
  : RWE and Engie have positive P/E and ROE; Centrica has negative metrics but high 5-year growth [0].
• Trends
  : AI data center electricity demand is projected to grow exponentially, positioning utilities as key beneficiaries [2].
• Risks
  : Regulatory constraints, infrastructure costs, competition, and Centrica’s financial performance [0].