Wall Street has been concerned that the Democratic Party's big win the midterm elections could mean heightened regulation for data centers and the artificial-intelligence buildout. Constellation Energy, the country's largest electricity generator, didn't seem all that worried as the company on Monday raised its full-year earnings guidance.
Constellation Energy, with its mix of nuclear power and natural gas, has become a key partner with Big Tech in recent years as hyperscalers have looked to shore up energy for data centers.
Wall Street, however, has become concerned that with Democrats taking control of Congress and winning the Texas gubernatorial race, data-center buildout could slow.
Constellation Energy on Monday signaled demand for its services remains strong.
The company raised its full-year adjusted earnings guidance to $12.50 to $12.80 a share, up from its previous expectation of $11.50 to $12.50. Analysts had been calling for $12.17 a share.
Constellation Energy stock rose 2.5% to $256.40 in premarket trading on Monday after ending Friday up 4.3%. Shares of fellow power provider Vistra gained 1% to $126.01 after rising more than 10% on Friday.
Constellation Energy's decision to raise its full-year profit guidance came as the energy provider posted adjusted third-quarter earnings of $5.06 a share with revenue growing 45% to $9.55 billion. Both the top- and bottom-line numbers easily surpassed Wall Street expectations.
Constellation added that it signed a new 20-year power purchase agreement in the quarter.
"This past quarter Constellation announced agreements that are helping meet one of the nation's greatest challenges -- powering a growing economy while protecting existing customers," CEO Joe Dominguez said in the earnings release.
Constellation's solid earnings and guidance couldn't have come at a better time for the stock. Shares tumbled 9.8% last week as the AI trade came under serious pressure on concerns around data-center moratoriums in Texas and federal regulation that could curb AI buildout.
Constellation Energy stock, as of Friday, had fallen 29% this year.
KeyBanc analyst Sophie Karp, following the midterm election, downgraded Vistra to Sector Weight from Overweight and removed her price target on the stock.
Karp said that a Democratic governor in Texas will "come as a negative surprise to investors" and that both Vistra and Constellation Energy will be negatively impacted by the resulting policy uncertainty.
Many firms on Wall Street, however, believe the midterm selloff is overdone and that there are buying opportunities.
"We see the market moves as an overreaction and think the ultimate impact will be a push-out of some projects from 2028 to 2029, rather than a derailing of the capex story," a Morgan Stanley analyst team said in a research note.
The firm said it remained "positive" on Constellation Energy "even if data-center growth is slower than expected."
"We expect data center moratoriums to reduce upside from higher power prices or additional hyperscaler contracting in impacted markets (most notably Texas/ ERCOT). However, we still see valuation support from cash flows on current assets, contracts, and forward curves, even with reduced data center upside. We prefer midAtlantic/PJM exposure (TLN, CEG) given the more stable regulatory backdrop for data center development," the Morgan Stanley analysts said.
Morgan Stanley has "high conviction" on Constellation Energy stock coming out of the midterm election. The firm has an Overweight rating on the shares with a $391 price target.
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