AES Gains 20% as Private Equity Eyes AI Hyperscale Energy Player

On July 9, a key energy partner to data center hyperscalers like Meta Platforms (NASDAQ: META), Amazon.com (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT) was the biggest gainer in the S&P 500 Index. That company is AES (NYSE: AES). Shares surged by nearly 20%, but not because the utility company signed a big new power agreement.

Instead, the company is reportedly receiving significant interest in another type of deal that would be among the biggest of its kind. Let’s dive into what’s driving AES’s double-digit percentage gain below.

Private Equity Eyes AES as AI Drives Clean-Energy Demand

AES is reportedly a target for a move that could be highly beneficial to shareholders: a private equity buyout. As first reported by Bloomberg, private equity companies like Brookfield Asset Management (NYSE: BAM) and BlackRock’s (NYSE: BLK) Global Energy Partners are interested in buying AES.   

This interest from private equity firms is due to multiple key factors. First, AES has become an attractive partner for hyperscale data center operators, all of whom have a keen focus on AI. In May, it signed two deals with Meta to offtake 650 megawatts (MW) of solar energy to support the company’s data centers.

It signed a similar deal with Microsoft in March and entered a deal with Amazon in 2024. Overall, the company has signed contractual agreements with major hyperscalers for 10.1 gigawatts of energy.

Private equity companies want to enter this space because analysts expect AI to create a greater energy need. That is particularly true for renewables, as essentially all hyperscalers have committed to reducing their carbon footprints.

The stock has also become much cheaper recently. As of the July 9 close, AES stock had provided a total return of approximately -49% since the beginning of 2023. Approximately 50% of AES’s generation capacity comes from renewable sources like solar and wind, but not nuclear. 

Additionally, 55% of its U.S. backlog through 2027 comes from solar. This has weighed on the stock, as President Trump has worked to reduce government support for solar and wind projects significantly. Now, we’ll break down the big reason why investors should care about this news.

Private Equity Will Pay Up for Public Buyouts

Private equity firms typically have to pay a significant premium over the stock’s public trading price to acquire a company. A study from Houlihan Lokey analyzed the premiums private equity firms paid in 2023 to acquire public companies. The study found that they paid an average premium of 52% compared to the stock’s trading price four weeks prior to the announcement. This premium reached as high as 138% and as low as 1%.

Although this is a wide range of outcomes, the data indicates that there is a significant opportunity for shareholders of a company that gets bought out to lock in large gains. These gains can come almost immediately after the announcement of a deal.

Markets typically bid up the price of a stock to at or near the level a private equity company has agreed to pay. Still, rumors are one thing. In actuality, how likely is a buyout of AES?

An AES Deal Would Be Huge, But Private Equity Has Trillions to Spend

Despite having a market cap of only around $9.4 billion, AES’s enterprise value before these rumors surfaced was approximately $40 billion. Enterprise value accounts for not only market cap, but also debt and other claims on the business. It represents what it would truly cost to own all the economic rights to a company’s earnings and assets.

With AES’s $32 billion in debt, its enterprise value price tag would require one of the largest private equity buyouts in history. This certainly dampens the likelihood that the deal could actually happen.

However, private equity companies also have a lot of money to spend. According to Bain & Company, private equity buyout funds had approximately $1.2 trillion in so-called “dry powder" at the end of 2024. This is capital that these funds have raised but are still waiting to deploy. Such a large amount of capital increases the likelihood of a deal.

Overall, these reports around AES are highly interesting, but it is far from certain that the company will be bought out. BlackRock is set to report earnings on July 15, while Brookfield will do so in August. Earnings calls could provide further insight into whether these companies are truly interested in AES.

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The article "AES Gains 20% as Private Equity Eyes AI Hyperscale Energy Player" first appeared on MarketBeat.