NiSource: Data Center Demand Drives Utility Stock Higher

NiSource shares rose 20% over the past year. Data center operators signed long-term power purchase agreements. That improved the utility's earnings outlook. The market is betting that electricity demand from AI and cloud computing will keep growing for years.

Data centers need 10 to 20 times the power of a typical commercial building. Utilities must build new transmission lines and generation capacity to serve them. NiSource operates in Indiana and Ohio, plus Kentucky. The company has a pipeline of new projects. It filed rate cases to recover those investments.

The stock's 20% gain may already reflect optimistic assumptions about data center demand. NiSource trades at a premium to the regulated utility average. If data center buildout slows because of AI model efficiency gains or regulatory hurdles, the stock could fall. Construction delays and cost overruns are common in utility infrastructure.

What to watch. NiSource's next earnings call will include updates on its capital expenditure plan and rate case progress. The Indiana regulatory commission's decision on the company's latest rate filing is a major catalyst. Indiana regulators have pushed back on rate increases in the past.

The data center demand theme is real. Utilities have a history of disappointing investors. Allowed returns on equity have been trending down. NiSource's premium multiple leaves little room for error. The stock's current valuation suggests limited upside from here.

NiSource shares have gained over 20% in the past year. Data center buildout is a multi-year trend. NiSource's ability to execute on its capital plan and secure timely rate recovery will determine whether the stock justifies its premium.