The AES Corporation (AES): Among the Best Utility Stocks to Buy According to Analysts

We recently published a list of 13 Best Utility Stocks to Buy According to Analysts. In this article, we are going to take a look at where The AES Corporation (NYSE:AES) stands against other best utility stocks to buy according to analysts.

Utility stocks represent companies primarily engaged in providing electricity, natural gas, and water distribution services, which are considered essential for households and most businesses. These companies are characterized by stable revenue streams, regulated operations, and often predictable earnings, making them attractive investment opportunities for risk-averse investors or those seeking steady income through dividends. The utility stocks are typically low-growth, as they operate in mature and well-established markets that only grow according to demographic trends, which are typically in low single digits. For these reasons, many investors have overlooked this sector, especially considering that it comprises less than 3% of the entire US stock market capitalization, making it relatively insignificant.

Despite its drawbacks, the utility sector becomes particularly appealing during periods of economic uncertainty or downturns, as the defensive nature of their business allows them to deliver more consistent returns and often hold their value while the overall market declines. With the broader market currently entering its first death-cross since 2022, the question of hedging one’s portfolio with defensive stocks becomes increasingly more relevant. There are solid reasons to believe that, similar to 2022, when a 12-month-long bear market kicked in with the emergence of a death-cross on the technical chart, the US stock market will now enter a prolonged bear market as well.

READ ALSO: 12 Best Electric Utility Stocks to Buy Now

First of all, it is well-known that the current market correction has been fueled by the Trump Tariff Turmoil, which cast a lot of uncertainty on consumption, Capex projects, and overall spending outlook in the US. We believe, however, that the root cause of President Trump’s action represents the attempt to normalize the country’s budget deficits, which have become critical in the last months. The US budget for 1H 2025 has been released, and it shows $2.3 trillion in tax revenues, $3.6 trillion in expenditures, for a total $1.3 trillion deficit. More importantly, the interest payments on the massive public debt represent a whopping ~26% of total tax revenue. To balance the budget, taxes would have to rise by an astounding 57%, or spending would have to be cut by 36%, both of which seem completely unrealistic in the current reality.

This leads to the possibility that $390 billion worth of tax cuts that expire this year will not be extended. Also, the previously promised tax cuts seem very unlikely – this was an important card in the President’s sleeve, which now seems unlikely to be played any time soon. In this context, the current administration has no means to provide any short-term boost to corporate earnings if the market dips too low. Under such a scenario, utility stocks appear like a safe haven to safeguard one’s funds while earning a solid dividend yield, which most of the companies provide.

Besides its defensive nature, the utility sector entered a period of acceleration in the business – the sector’s outperformance actually started at the beginning of 2024 due to the AI megatrend. Fidelity claims that there is a once-in-a-generation opportunity with utility stocks as their previous anemic 1-2% growth has the potential to increase to 6-8% over the next 10 years, which will also provide a substantial expansion in their valuation multiples. The main driver of this expected acceleration is coming from AI:

“The rapidly developing technology of artificial intelligence is proving to be a significant boost to predicted energy demand over the next decade. AI requires immense computational power, storage space, and low-latency networking for training and running models. These applications are usually hosted in data centers. As AI continues to become more ubiquitous, the energy demands from data centers will grow exponentially, which I believe will translate to higher earnings growth for certain utilities. Driven by these trends, energy demand is forecasted to grow over 38% over the next 2 decades. Regulated utilities will need to build new power plants to satisfy this surge in demand. Deregulated utilities should also benefit. As reserve margins are tightening, power prices for existing energy should also increase.”

All in all, the key takeaway for readers is that the utility sector is favored by both its defensive nature as well as the large-scale acceleration in electricity demand due to the AI trend. Consequently, we are currently at an opportune moment to invest in the best utility stocks.

Our Methodology

To compile our list of best utility stocks, we use a stock screener to filter for utility stocks with positive average upside from sell-side analysts as of April 16. Then we included in the article the top 13 stocks with the largest average analysts’ upside. For each stock, we also included the largest number of hedge funds that own the stock as of Q4 2024, as per Insider Monkey’s database.

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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

The AES Corporation (NYSE:AES)

Average estimated analysts’ upside: 42.45%

Number of Hedge Fund Holders: 53

​The AES Corporation (NYSE:AES)’s global business is organized into four segments: Renewables, Utilities, Energy Infrastructure, and New Energy Technologies. The Renewables segment includes solar, wind, hydroelectric, and energy storage facilities. The Utilities segment comprises regulated electricity to residential, commercial, and industrial customers. The Energy Infrastructure segment encompasses thermal generation assets, including natural gas, LNG, coal, and oil-fired plants. The New Energy Technologies segment focuses on digital energy solutions.

The AES Corporation (NYSE:AES) achieved adjusted EBITDA of $2.64 billion in 2024, landing in the lower half of guidance due to weather-related events in Colombia and Brazil, while generating parent free cash flow of $1.1 billion at the midpoint of guidance and record adjusted EPS of $2.14. For 2025, the company expects significant growth with over 60% YoY increase in renewables EBITDA, driven primarily by previous growth in the US renewables portfolio and plans to bring online another 3.2 gigawatts of renewable capacity. The company has initiated 2025 guidance, including adjusted EBITDA of $2.65 billion to $2.85 billion, parent free cash flow of $1.15 billion to $1.25 billion, and adjusted EPS of $2.10 to $2.26.

To strengthen its financial position, The AES Corporation (NYSE:AES) is implementing several strategic actions, including reducing current investment in renewables by $1.3 billion through 2027, focusing on highest risk-adjusted return projects, and implementing organizational efficiency measures that will yield approximately $150 million in cost savings in 2025, ramping up to over $300 million in 2026. The company has eliminated the need for issuing new equity during the forecast period while maintaining its dividend and remains committed to maintaining investment-grade credit ratings. Additionally, the company has significantly derisked its portfolio through the sale of 5.2 gigawatts in Brazil, eliminating substantial hydrology, currency, spot price, and floating interest rate risk exposures. We believe the company’s transformation positions it well to succeed in the following years, which makes it one of the best utility stocks to consider in 2025.

Overall, AES ranks 3rd on our list of best utility stocks to buy according to analysts. While we acknowledge the potential of AES to grow, 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 AES but that trades at less than 5 times its earnings, check out our report about the 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.