Data Centers Drive Surge in US Utility Capex; 2026E Growth of 24%, Generation and Transmission Benefit Most

Overview

This report updates Bernstein's 'State of Utility Capex' tracker series, focusing on short- and long-term capital expenditure trends for US electric utilities in 1Q26. The core conclusion is that utility capex is accelerating due to strong demand from large loads such as data centers, and this growth is expected to be sustained over multiple years. 1Q26 capex grew 24% YoY, and multi-year budget revisions hit a three-year high. The report suggests that investment growth is most pronounced in generation and transmission, benefiting relevant electrical equipment manufacturers and contractors, particularly those with competitive advantages in high-voltage transmission and complex infrastructure projects.

Core views

Demand Side: Explosive growth in large load demand led by data centers. The tracked large load pipeline reached a cumulative capacity of 564 GW, up 27% QoQ from 445 GW, equivalent to 42% of current US generation capacity. This growth is primarily driven by data centers; for example, Sempra's Oncor filed load forecasts of 127 GW, more than 4x its current peak load. Utilities like AEP, Duke Energy, and Southern Company have also reported tens of GWs in data center load pipelines. This unprecedented demand has forced utilities to significantly raise capex plans. Supply Side & Spend Structure: Capex shifting toward generation and transmission. In 1Q26, utility multi-year capex budgets were revised up 24% YoY, with 80% of the increase coming from generation. For 2026E spending, generation is expected to grow 36% (revised up 2 ppts QoQ), transmission 25% (revised up 1 ppt QoQ), while distribution is expected to grow 14% (significantly accelerating, but its share has declined 4 ppts since 2024). This indicates that new large loads require new generation sources and robust high-voltage transmission networks, not just end-point distribution upgrades. Company-Level Highlights: Multiple utilities significantly raised guidance. Entergy increased its multi-year capex plan from $44bn to $57bn, with all incremental spend allocated to generation, largely driven by data center agreements with Meta. AEP raised its five-year capital plan from $72bn to $78bn, noting 63 GW of incremental contracted load, 90% of which comes from data centers. Exelon highlighted a structural shift, reducing distribution investment by $1.1bn while increasing transmission investment by $1.5bn to address transmission bottlenecks. Investment Implications: Divergent benefits for electrical equipment players. Since every mile of new high-voltage transmission line requires approximately 10 miles of interconnection lines, substations, and distribution upgrades, this multiplier effect favors Quanta Services (PWR), which has strong competitiveness in transmission construction. Meanwhile, Eaton (ETN) and Hubbell (HUBB) benefit from broader electrification trends and equipment demand. The report maintains Outperform ratings for ETN and HUBB, and a Market-Perform rating for PWR. In Europe, Schneider, Siemens, and Prysmian also receive Outperform ratings.

Analysis framework

The report employs a bottom-up data tracking approach, aggregating quarterly earnings and guidance from major US investor-owned utilities (IOUs) to build a comprehensive capex monitoring model. The analytical logic follows a 'Demand Driver -> Capital Allocation -> Supply Chain Beneficiary' framework: First, it quantifies the scale of demand from new loads like data centers and their pressure on existing grid capacity via a 'Large Load Pipeline Tracker'; second, it dissects utility capex budgets across generation, transmission, and distribution to identify structural shifts in fund flows; finally, it assesses demand elasticity and competitive landscapes across sub-sectors based on electrical equipment companies' business exposure (e.g., PWR's share in transmission construction, ETN/HUBB's share in distribution and electrical components) to derive stock selection conclusions.

Methodology notes

• Industry Analysis FrameworkSupply-demand framework

  Analyzing drivers of grid investment by tracking the alignment between large load pipelines (demand side) and utility capex plans (supply side response).

  The report looks beyond current spending data to focus on future demand pipelines (e.g., 564 GW of data center load) to judge the sustainability and structural changes in capex (e.g., tilt toward generation and transmission). This approach helps identify early signals of industry cycles and long-term trends.

• Industry Analysis FrameworkValue Chain Transmission

  Analyzing the demand transmission mechanism from utilities (midstream/customers) to electrical equipment manufacturers (upstream/suppliers).

  By analyzing changes in utility investment ratios across generation, transmission, and distribution, the report infers demand differences for specific electrical equipment segments (e.g., transformers, switchgear, construction services), thereby precisely identifying beneficiaries (e.g., PWR benefiting from transmission construction, ETN from overall electrification).

• Competition & Strategy FrameworkMoat / competitive advantage

  Evaluating competitive barriers for specific companies in niche markets, such as Quanta Services' scale and integration capabilities in high-voltage transmission construction.

  The report notes PWR's observation that every mile of new high-voltage line requires ~10 miles of supporting interconnection facilities. This complex system integration capability and economies of scale constitute its competitive advantage, enabling it to secure more stable order flow during massive grid upgrades compared to pure equipment suppliers.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Quanta Services (PWR.N)

  Beneficiary: Transmission construction leader, directly benefiting from massive investment in high-voltage transmission lines and supporting interconnection facilities.

  Strengths

  Significant competitive advantages and economies of scale in high-voltage transmission construction; multiplier effect where every mile of new line drives ~10 miles of supporting investment.

  Comparison

  Compared to ETN and HUBB which have higher distribution exposure, PWR benefits more purely from the wave of new transmission infrastructure.

• Eaton Corp (ETN.N)

  Beneficiary: Electrification component supplier, benefiting from overall capex expansion and strong data center demand for electrical equipment.

  Strengths

  Diversified product portfolio; healthy backlog in data center electrification; benefits from multi-year end-market growth.

  Comparison

  Similar to HUBB but larger in scale and more globalized.

• Hubbell Inc (HUBB.N)

  Beneficiary: Electrical connection and component supplier, benefiting from grid modernization and data center construction.

  Strengths

  Strong position in utility solutions; healthy backlog; benefits from electrification tailwinds.

  Comparison

  Along with ETN, a primary beneficiary of distribution and electrical components.

• Schneider Electric (SU.PA)

  Beneficiary: European electrical giant, benefiting from global grid investment and data center energy efficiency solutions.

• Siemens AG (SIE.GR)

  Beneficiary: European industrial giant, providing grid technology and automation solutions.

• Prysmian SpA (PRY.IM)

  Beneficiary: Global cable leader, benefiting from demand for submarine cables and high-voltage land cables.

Key data

• 1Q26 Utility Capex YoY Growth24%Far exceeding the typical -17% seasonal decline, actual performance was 13 ppts above seasonal patterns.
• 2Q26 & 3Q26E Capex YoY Growth30%Consensus estimates indicate momentum will continue to accelerate.
• Multi-Year Capex Budget YoY Revision (1Q26)24%Highest in over 3 years; historical average for the same period is only 1.5%.
• Cumulative Large Load Pipeline Capacity (1Q26)564 GWUp 27% from 445 GW in 4Q25, representing 42% of current US generation capacity.
• 2026E Generation Capex Growth Rate36%Revised up another 2 ppts from last quarter; strongest area of spending growth.
• 2026E Transmission Capex Growth Rate25%Revised up 1 ppt from last quarter.
• 2026E Distribution Capex Growth Rate14%Significant acceleration from 6% last year, but share of total capex continues to be eroded by generation and transmission.
• Eaton (ETN) Target Price$534Rating: Outperform.
• Hubbell (HUBB) Target Price$584Rating: Outperform.
• Quanta Services (PWR) Target Price$725Rating: Market-Perform.

Impact & implications

For the electrical equipment industry, this signals the formation of a multi-year super-cycle driven by data centers. Traditional distribution-led investment is shifting toward generation and high-voltage transmission, requiring investors to reassess revenue mixes and risk exposures of relevant companies. For transmission construction leaders like PWR, the opportunity is not merely linear growth but a multiplier effect driven by grid interconnection complexity. For component suppliers like ETN and HUBB, despite a relative decline in distribution share, rapid expansion of the overall market size and specific data center requirements (e.g., high reliability, fast delivery) still provide strong growth drivers. European electrical equipment giants similarly benefit from global electrification and grid modernization trends.

Risks

• Regulatory approval delays or adverse rulings could impact capex recovery and execution pace.
• Supply chain bottlenecks (e.g., transformers, labor shortages) could lead to project delays and cost overruns.
• Macroeconomic slowdown resulting in lower-than-expected data center construction demand.
• Changes in interest rate environment affecting utility financing costs and capex appetite.

What to watch

• Upward or downward revisions to utility capex guidance in subsequent quarters.
• Scale of new Electric Service Agreements (ESAs) signed between big tech companies (e.g., Meta, Google, Amazon) and utilities.
• Progress in bidding and awards for high-voltage transmission projects (e.g., MISO Tranche, PJM RTEP).
• Lead times and pricing trends for key electrical equipment (e.g., transformers).