Investors Weigh AI Growth Against Utility Stability with Nvidia and Dominion Energy

Investors often latch onto trends, driving prices to unsustainable levels. Today’s focal point is artificial intelligence (AI). Nvidia (NASDAQ: NVDA) stands out in the AI sector, with Wall Street closely monitoring the company’s every statement. However, Nvidia may not be the best option for all investors. Here’s why you might find greater appeal in Dominion Energy (NYSE: D).

AI Trends Capturing Investor Attention

AI technology has advanced rapidly, garnering attention from major corporations experimenting with its capabilities. Financial news regularly features AI discussions, making it a dominant trend on Wall Street.

While the allure of AI is evident, its long-term impact remains uncertain. The effectiveness of various companies in capitalizing on AI is still up for debate. Currently, Nvidia leads in providing the essential “brains” of AI. Notably, its valuation appears reasonable with price-to-sales and price-to-earnings ratios below their five-year averages.

However, Nvidia’s P/E ratio stands at 39, slightly higher than the tech sector average of around 33. Hence, categorizing it as cheap is inaccurate. Additionally, history shows that pioneering companies don’t always retain their positions; for instance, Yahoo! was once the primary search engine before being overtaken by Alphabet’s Google.

In essence, while investing in Nvidia appears appealing, it carries inherent risks. Alternatively, consider investing in a regulated electric utility, like Dominion Energy.

Evaluating Dominion Energy as an Alternative

Nvidia is the preferable choice for direct AI investment; however, electricity is essential for AI operations. Demand for power in data centers is projected to increase by 300% over the next decade to support AI’s growth, necessitating significant investment in the power grid, which benefits utility companies.

Dominion Energy presents an interesting scenario. The company has undergone a corporate restructuring, now focusing solely on being a regulated electric utility. Recently, it cut its dividend, and rates are expected to stabilize for a few years as the company seeks to align its dividend payout ratio with industry norms. Despite being out of favor in the market, Dominion offers a dividend yield of 4.9%, significantly higher than the utility average of 2.9% and Nvidia’s minimal yield of approximately 0.05%.

Dividend investors may find Dominion more appealing than Nvidia. Notably, Dominion commands a monopoly in one of the world’s largest data center markets, experiencing an impressive 88% growth in data center demand between July and December 2024. This growth underpins the utility’s projected earnings growth of 5% to 7%.

Achieving this growth could lead to a more favorable Wall Street valuation for Dominion and pave the way for dividend increases, making it an attractive low-risk turnaround story with ties to AI. For dividend investors, it may offer a better long-term opportunity than relying on Nvidia’s continued dominance.

Exploring Additional Options in the AI Sector

It’s important to note that Dominion isn’t the sole electricity-focused investment in the AI space. Other utilities and emerging technology companies also stand to benefit. For instance, Bloom Energy produces power cells that can be deployed more rapidly than traditional power lines, while NuScale Power aims to develop small-scale nuclear reactors near AI data centers. Yet, Dominion’s appealing dividend yield and lower relative risk remain highly compelling for those interested in AI without the volatility of tech stocks.

Consider Your Investment Choices Wisely

Weighing options with caution is essential in today’s investment landscape. Understanding the balance between AI growth potential and utility stability will guide investment decisions in the current market.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.