American Electric Power Company, Inc. (AEP): A Bear Case Theory

We came across a bearish thesis on American Electric Power Company, Inc. on Value investing subreddit by 404_usrntfnd. In this article, we will summarize the bears’ thesis on AEP. American Electric Power Company, Inc.'s share was trading at $119.21 as of January 29th. AEP’s trailing and forward P/E were 17.44 and 18.94  respectively according to Yahoo Finance.

American Electric Power Company, Inc., an electric public utility holding company, engages in the generation, transmission, and distribution of electricity for sale to retail and wholesale customers in the United States. AEP is positioned to benefit from the projected surge in data center power demand, which Morgan Stanley estimates will reach 150 gigawatts by 2030—roughly triple current consumption. This has fueled bullish sentiment around regulated utilities, as the demand growth seems poised to support earnings expansion.

However, the market may be underestimating the execution risk associated with bringing this demand online. While data centers can be built in 18-24 months, constructing high-voltage transmission lines required to serve them can take 5-10 years, creating a “transmission gap.” This mismatch introduces a stranded asset risk, where billions of dollars in CapEx may be deployed without corresponding revenue, potentially weighing on future free cash flow, which is currently negative ~$2 billion.

Despite trading at a P/E of ~17x, in line with historical utility averages, and offering a dividend yield of ~3.3%, the market appears to be pricing in a “business as usual” scenario, overlooking these structural execution risks. Insider activity, including Q4 2025 director selling, signals management may be de-risking, adding to investor caution. Regulatory scrutiny is rising as data center-related electricity price increases draw political attention, and recent FERC rulings require greater transparency on cost allocation, limiting potential margin expansion.

Countervailing factors could mitigate these risks, including regulatory fast-tracking of transmission approvals through DOE-designated National Interest Electric Transmission Corridors and potential rate base growth if utilities can fully pass costs to data center customers. However, absent these catalysts, $AEP’s capital appreciation appears constrained by infrastructure delays, making the dividend a reliable floor but limiting upside. Investors may prefer to wait for clearer regulatory signals or a more attractive entry point before committing, given the timeline and execution challenges inherent in monetizing the data center boom.

Previously, we covered a bullish thesis on Evergy, Inc. (EVRG) by Hidden Market Gems in April 2025, which highlighted the company’s defensive positioning, resilience to macro shocks, high yield, and low volatility. EVRG’s stock price has appreciated by approximately 17.18% since our coverage. This is because the thesis played out as investors continued to favor stable utilities. 404_usrntfnd shares a contrarian perspective but emphasizes the execution risks and transmission challenges facing American Electric Power ($AEP), despite strong data center-driven demand.

American Electric Power Company, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held AEP at the end of the third quarter which was 53 in the previous quarter. While we acknowledge the potential of AEP as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

READ NEXT: 30 Stocks That Should Double in 3 Years and 11 Hidden AI Stocks to Buy NOW 

Disclosure: None.