We recently published a list of 10 Most Profitable Utility Stocks to Buy Now. In this article, we are going to take a look at where Sempra (NYSE:SRE) stands against other most profitable Utility stocks to buy now.

Utility companies supply basic utilities like water, gas, and electricity. The demand for these stocks’ services is often steady, even during recessions, which makes them defensive investments.

Morningstar energy and utilities strategists Travis Miller and Andrew Bischof see reasons to invest in utility companies, stating that while the 2024 surge paused in October as interest rates began to rise, utility stocks are still holding on to their stellar performance from the previous year. Most US utilities are trading near the estimates of their fair values as of mid-February.

Utility firms generally generate substantial dividends and appear to be expensive at present. Miller & Bischof stated:

“Utilities continue to grow their dividends at an impressive rate. Nearly all utilities have already announced dividend increases for 2025 or are on track to announce increases in the first quarter. We expect 5% median sectorwide dividend growth in 2025.”

According to JP Morgan’s report in 2024, utility stocks have become unanticipated market leaders, outperforming only the technology sector and yielding a total return of over 17%. The adoption of AI, the growth of data centers, the proliferation of EVs, and the outsourcing of manufacturing are the main drivers of this rally, which is aided by a rapid shift in the demand for electricity. Data centers alone already account for 4.5% of U.S. electricity usage, which is expected to rise to almost 8% by 2030 after two decades of stagnant demand. Given the growing number of extreme weather events, the U.S. electric grid, which is largely over a century old, is unprepared to handle this surge and will require significant investments in capacity, stability, and resilience. Businesses engaged in storage, grid upgrading, and generation stand to gain from this shift. The industry is trading at 18.7x projected earnings, which is 13% less than the broader market, showing that it will continue to be valuable even after the recovery. Utility dividend yields may become more attractive if interest rates decline, which could lead to more growth. Utilities present a strong alternative for investors looking to gain exposure to the expansion of AI-related infrastructure without following tech prices, supported by real demand and structural investment requirements.

The broader market’s utilities sector has performed well over a range of historical periods. The year-to-date return is 3.61%. In the last year, the sector’s return was strong at 17.65%. When considering longer periods, the annualized return is 1.86% for the first three years and 6.13% for the fifth. At 5.68%, the 10-year annualized profit is a little lower. The utilities sector exhibits steady growth in comparison to the overall market, with large short-term gains but a more moderate long-term return, showing its defensive nature and steadiness during volatile times. The resilience of the 5-year performance is noteworthy.

Story Continues

Utility stocks may be more secure than other sectors, but they are nevertheless vulnerable to a halt in expenditure on thirsty data centers. Long seen as market safe havens, utility equities are suddenly uncertain as artificial intelligence changes the demand for electricity. According to Scotiabank’s Andrew Weisel, “electricity is a very basic need for most individuals and most companies,” underscoring the industry’s longstanding resiliency. However, as U.S. consumption dominates the world and is expected to exceed 1,000 TWh annually by 2030, as per the IEA, this stability is becoming increasingly connected to AI-driven data centers. Earnings risks are increased by a slowdown in AI capital expenditures, such as a giant tech company owned by Bill Gates reducing some of its programs. Weisel cautioned that “investors will be skeptical,” while Nikki Hsu of Bloomberg Intelligence pointed out that “requests for rate hikes would be rejected by regulators” during a recession.10 Most Profitable Utility Stocks to Buy Now

A power transmission tower with a desert sunset in the background, symbolizing power and energy.

Our Methodology

For this list, we screened for utility companies with a net profit margin over 10%, which suggests sound financial health and excellent cost management. The stocks are ranked in ascending order of their net profit margin as of the most recent quarter.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Sempra (NYSE:SRE)

Net Profit Margin: 26.55%

Sempra (NYSE:SRE) serves one of the most extensive utility customer bases in the United States. It owns 80% of Oncor, a transmission and distribution company in Texas, and distributes electricity and natural gas throughout Southern California. Over 20 million consumers are served by SoCalGas and San Diego Gas & Electric, while over 10 million customers in Texas are served by Oncor. Sempra Infrastructure Partners, of which the firm maintains a majority stake, owns and runs infrastructure in Mexico as well as liquefied natural gas plants in North America.

For 2024, Sempra (NYSE:SRE) reported adjusted EPS of $4.65, which was marginally below the middle of their guidance range. The business has issued a 2026 EPS projection of $4.80-$5.30, which represents about 12% growth from the 2025 midpoint, and amended its 2025 EPS guidance to $4.30-$4.70. Notably, SRE is increasing its long-term EPS growth rate projection to 7-9% because of the impressive growth in earnings that Sempra Texas is anticipated to generate. Opportunities at Oncor account for more than half of the company’s new record capital plan of $56 billion for 2025–2029, which represents a 16% increase over the previous plan. The positive projection, combined with double-digit average analyst upside, leads us to add the company to our list of the Best utility stocks.

Sempra (NYSE:SRE)’s price target was increased by Morgan Stanley from $85 to $86. The analyst informs investors that the company is revising its price expectations for North American Regulated and Diversified Utilities/IPPs. According to the company, utilities beat the S&P’s 1.40% decline in February. Regulatory instability in power markets, renewables defense with safe harboring, equipment onshoring, rising return levels, and new generation development problems are among the key takeaways from the company’s annual Energy & Power Conference, according to the firm.

Overall, SRE ranks 4th on our list of the 10 Most Profitable Utility Stocks to Buy Now. While we acknowledge the potential of Utility companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than SRE but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.

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