TheChek News Flow

Richard Toh’s raw mea culpa details how he ignored Nvidia and bitcoin and misread tariffs

In early December, Richard Toh, the chief executive and investment officer for the Singapore-based hedge-fund firm Kenrich Partners, sent a four-page letter to investors.

The news was bad.

Kenrich’s Ocular Asia fund, which managed around $50 million, lost 7.9% in November. The bigger picture was worse—it had lost 35.4% so far in 2024. By comparison, its benchmark of Asian stocks outside of Japan was up 8.6% for the year.

For a page and a half, Toh discussed tariffs, investments and missed opportunities while weaving in mentions of Donald Trump, Elon Musk and Taylor Swift. Then he got to the point.

“I have come to the realization that I am not good at what I am doing but I guess some of you may have sensed that already,” he wrote. “I am sorry I have let you down.”

Hedge funds come and go, but few have done so with the kind of pathos and self-flagellation that Toh heaped upon his investors. (The letter was unsigned, but an employee at the fund confirmed Toh was the author. He declined, through this employee, to comment further.)

“I pretty much missed all the major themes in the last two years,” Toh wrote. “I was hopelessly out of sync with the market, buying when I should be selling and selling when I should be buying. We got whipsawed several times this year even as we got some facts correct.”

Some investments in artificial intelligence and video-streaming companies did well in November. But he explained how Asian companies were caught off guard by President-elect Trump’s plans to place tariffs on imports from Mexico, where many of them assemble AI servers.

Then, he told a story about questioning one of his young software engineers’ personal holdings, and why he owned a single stock.

“After consulting him for his reasons, which were not much, I told him that we did not invest in the US markets and that Nvidia NVDA -2.09%decrease; red down pointing triangle did not fit any of the criterion based on our value way of looking at companies,” Toh wrote. Shares of Nvidia—which makes graphic processing unit chips that are integral to AI software—rose over 180% so far in 2024, putting its market value above $3 trillion.

The software engineer’s only other holding? Bitcoin. In response, Toh started mining Ethereum, which hasn’t risen as stratospherically as the original cryptocurrency.

“I learned from that episode that sometimes the best investments are precisely the ones you cannot explain and probably made no sense. It also told me I am getting too old,” he wrote.

Toh isn’t a well-known name in capital markets, but he has been in the investing business for nearly 40 years. According to an archived bio on his company’s website, he founded Kenrich in 1998 after working at Morgan Stanley Asset Management in Singapore.

It isn’t clear from the letter what dragged on the fund’s portfolio. The second-largest holding by the end of November was Taiwan Semiconductor Manufacturing, which has roughly doubled so far in 2024. Its two other largest holdings were Naver, the South Korean owner of a search engine, and Sunny Optical Technology, a lens supplier for Chinese smartphones. Neither had fallen as much as the broader portfolio by the end of the month.

Toh informed his investors that the fund was shutting down by the end of 2024. As of the end of November, about a third of its assets were already in cash.

It wasn’t clear if Kenrich as a whole was closing, or just the Ocular fund, which started in 2018. After distributing the remainder of the capital, Toh said he planned to take a year to rest and “change the way I look at things.”

Disciplined crude giants have replaced the unruly band of frackers who led the shale boom

President-elect Donald Trump wants U.S. oil producers to rekindle their once-frenzied drilling, but the country’s shale patch has changed since his first administration.

Wildcatters are mostly gone, replaced by more disciplined oil giants. Wall Street has helped instill that discipline, pushing oil companies to focus more on producing cash for investors. Meanwhile, production in most U.S. crude regions is set to decline as fields mature and sweet spots dwindle.

What this means: The oil patch is unlikely to see the kind of breakneck growth it saw in Trump’s first term, when daily crude production shot up from about nine million barrels to roughly 13 million.

“We’re not going to have the explosive growth that we’ve seen,” Richard Dealy, who oversees Exxon Mobil’s Permian operations, said.

Disappearing wildcatters

The changes are reshaping the Permian Basin of West Texas and New Mexico, the largest oil field in the U.S. A decade ago, 30 companies produced about a third of the crude there. As of July, Exxon, Diamondback Energy and Occidental Petroleum cranked out a similar share of the basin’s output.

A telltale sign of shale’s ripening is the fates of rapidly disappearing wildcatters, who ignited the shale boom by deploying new drilling techniques and hydraulic fracturing. These companies, many of them privately held, retained a penchant for frantic drilling even after their publicly traded peers reigned in spending and started returning cash to investors.

When crude prices rebounded from the pandemic depths, private outfits such as Endeavor Energy Resources were among the first to slowly step up production. Since then, public companies have gobbled up many of these private firms, including Endeavor, which Diamondback bought for $26 billion this year.

Private firms today run about 25% of rigs in the Permian, down from roughly 50% in January 2022, said Rob Wilson, an analyst with energy analytics firm East Daley Analytics. This decline means much fewer companies are willing—or able—to dial up supply when prices creep higher.

Despite a flurry of mergers in the past year and a half, shale remains far less concentrated than the auto or airline industries, and investors believe that it will see more megadeals.

“As it consolidates further, it becomes a giant factory,” Chris Atherton, chief executive of EnergyNet, a marketplace for oil and gas assets, said of the Permian.

Efficiency over growth

After rebounding from the pandemic-induced bust, drillers pushed U.S. production to a record of over 13 million barrels a day under President Biden. Though oil prices remain high enough for many producers to make a profit, drillers are running into geologic limits that will constrain further growth—barring any technological breakthrough—keeping drilling rigs idle.

Operators are also wrestling with limited capacity from the power grid to support their electricity-intensive activity, and struggling to dispose of the huge amounts of wastewater they produce alongside crude.

Other basins that powered the shale revolution have either seen declining output or are set to roll over, according to analysts at JPMorgan Chase. This includes the Eagle Ford Shale in Texas, the Williston Basin in North Dakota and the DJ Basin in Colorado.

JPMorgan estimates that U.S. crude oil production will grow by 3.6% between now and the end of the decade to reach about 13.5 million barrels a day. That compares to a roughly 13.4% increase in output since 2022.

Instead of additional drilling, companies are focused on squeezing more oil out of what remains.

“We’ve been drilling 300 wells a year here for, you know, eight years. We better get better at what we do,” Diamondback President Kaes Van’t Hof said.

The industry’s rising productivity means that companies can do more with fewer employees. Many executives expect the industry to contract further.

With global economies stuck in low growth, profit margins cannot rise forever and political risks may increase

Political turmoil seems to be everywhere these days. Not just in the Middle East but in nations such as France and Germany. In other countries like the US, political polarisation is intensifying. The proximate causes may differ but the underlying problem seems clear; it is hard to keep voters in a democracy happy when their standard of living is not improving.

In the midst of all this popular discontent, the equity markets couldn’t be happier. US equity indices are regularly hitting all-time highs and the S&P 500 index is up nearly a quarter this year. The FTSE 100 index rose above 8,000 in April and has not dropped below that level since, holding on to a gain of about 5 per cent for 2024. Even Germany’s Dax 40 is about 18 per cent higher than at the start of 2024 despite the country’s economic and corporate problems. 

What explains the disconnect? It is certainly not the growth outlook. The latest OECD report shows that European countries, as well as Japan, will only manage GDP growth in the 1-1.5 per cent range over the next two years. In the US, growth is expected to slow in 2025 and 2026 from the near-3 per cent rates achieved over the past two years. These are hardly the “roaring Twenties” that some hoped for at the start of the decade. 

A key reason is that the experience of the ordinary voters and the experience of the corporate sector are quite different. The profit margins of US large companies are close to an all-time high, according to Jefferies research. Although some of the plans of president-elect Donald Trump, such as widespread tariffs and mass deportations, seem quite alarming, investors are not too concerned. They think Trump will retreat from the most extreme measures and focus on a market-friendly programme of deregulation and tax cuts. They are betting the house on US exceptionalism. The US stock market is a global behemoth, comprising 73 per cent of the MSCI World Index at the end of 2023, compared with the US’s 26 per cent share of global GDP. 

Nevertheless, the US, like Europe, suffers from voter discontent. Even America’s superior growth record was insufficient to re-elect the Democrats since inflation had eroded voters’ standard of living. The long-term problem is that voters are happy to demand public services but less content to pay the taxes that fund them. In the past, this circle was squared through economic growth. Without growth, economic policy becomes a zero-sum game, in which gains for one group can only come at the expense of losses for another. And the losers are always more angry than the winners are grateful. 

In the fallout, developed economies seem to be heading for one of two outcomes: plutocracy or gridlock. Plutocracy has clearly won in the US where Elon Musk, the richest man in the world, helped finance the campaign of Donald Trump and has been given the brief of cutting government spending.  

In Europe, gridlock has the upper hand. Proportional representation leads to a fragmentation of parties, making it harder to create a stable governing coalition. Gridlock makes it difficult for governments to pass budgets (as demonstrated by France) or to deliver the kind of reforms that might boost economic growth (as in Germany).

And it is difficult to see how growth can significantly accelerate. Europe’s working age population is expected to decline 15 per cent by 2070. The EU has a birth rate of 1.46 per female which means that immigration will be needed to boost the population. But the need for immigration has led to a politically toxic debate in which anti-immigration parties are steadily increasing their vote, something that makes the formation of a stable government even more difficult. Nor is the US entirely immune from this problem. At 1.8, its birth rate is better than the EU’s but below replacement rate. Since mid-2023, the growth in the US labour force has stemmed entirely from immigration (legal and illegal) according to Dhaval Joshi of BCA Research.

As this column takes the long view, it is very hard to be optimistic about the outlook for democracy. As noted above, plutocracy can be self-sustaining and may spread outside the US. Gridlock may also degenerate into one-party rule when nationalist parties take charge. As has been seen in Hungary, governments can maintain their own rule by undermining such bulwarks of a liberal democracy as a free press or an independent judiciary. 

Eventually, all this may rebound on investors. Profit margins cannot go up forever and eventually populist parties may turn their firepower on to the corporate sector. Furthermore, a world in which governments are ruled by nationalists is a world where the free movement of goods and capital, as well as people, will eventually be restricted.  

Investors got a very good deal out of the post-1945 international order in which by and large, national governments played by the rules. But now the rule book is being torn up. It may turn out that stock markets are like the first-class passengers on the Titanic; toasting each other with champagne as the boat bears down on the iceberg.

Encode, the nonprofit organization that co-sponsored California’s ill-fated SB 1047 AI safety legislation, has requested permission to file an amicus brief in support of Elon Musk’s injunction to halt OpenAI’s transition to a for-profit company.

In a proposed brief submitted to the U.S. District Court for the Northern District of California Friday afternoon, counsel for Encode said that OpenAI’s conversion to a for-profit would “undermine” the firm’s mission to “develop and deploy … transformative technology in a way that is safe and beneficial to the public.”

“OpenAI and its CEO, Sam Altman, claim to be developing society-transforming technology, and those claims should be taken seriously,” the brief read. “If the world truly is at the cusp of a new age of artificial general intelligence (AGI), then the public has a profound interest in having that technology controlled by a public charity legally bound to prioritize safety and the public benefit rather than an organization focused on generating financial returns for a few privileged investors.”

OpenAI was founded in 2015 as a nonprofit research lab. But as its experiments became increasingly capital-intensive, it created its current structure, taking on outside investments from VCs and companies, including Microsoft.

Today, OpenAI has a hybrid structure: a for-profit side controlled by a nonprofit with a “capped profit” share for investors and employees. But in a blog post this morning, the company said it plans to begin transitioning its existing for-profit into a Delaware Public Benefit Corporation (PBC), with ordinary shares of stock and the OpenAI mission as its public benefit interest.

OpenAI’s nonprofit will remain but will cede control in exchange for shares in the PBC.

Musk, an early contributor to the original nonprofit entity, filed suit in November requesting an injunction to halt the proposed change, which has long been in the works. He accused OpenAI of abandoning its original philanthropic mission of making the fruits of its AI research available to all, and of depriving rivals of capital — including his AI startup, xAI — through anticompetitive means.

OpenAI has called Musk’s complaints “baseless” and simply a case of sour grapes.

Facebook’s parent company and AI rival, Meta, is also supporting efforts to block OpenAI’s conversion. In December, Meta sent a letter to California attorney general Rob Bonta, arguing that allowing the shift would have “seismic implications for Silicon Valley.”

Lawyers for Encode said that OpenAI’s plans to transfer control of its operations to a PBC would “convert an organization bound by law to ensure the safety of advanced AI into one bound by law to ‘balance’ its consideration of any public benefit against ‘the pecuniary interests of [its] stockholders.’”

Encode’s counsel notes in the brief, for example, that OpenAI’s nonprofit has committed to stop competing with any “value-aligned, safety-conscious project” that comes close to building AGI before it does, but that OpenAI as a for-profit would have less (if any) incentive to do so. The brief also points out that the nonprofit OpenAI’s board will no longer be able to cancel investors’ equity if needed for safety once the company’s restructuring is completed.

OpenAI continues to experience an outflow of high-level talent due in part to concerns that the company is prioritizing commercial products at the expense of safety. One former employee, Miles Brundage, a longtime policy researcher who left OpenAI in October, said in a series of posts on X that he worries about OpenAI’s nonprofit becoming a “side thing” that gives license to the PBC to operate as a “normal company” without addressing potentially problematic areas.

“OpenAI’s touted fiduciary duty to humanity would evaporate, as Delaware law is clear that the directors of a PBC owe no duty to the public at all,” Encode’s brief continued. “The public interest would be harmed by a safety-focused, mission-constrained nonprofit relinquishing control over something so transformative at any price to a for-profit enterprise with no enforceable commitment to safety.”

Encode, founded in July 2020 by high school student Sneha Revanur, describes itself as a network of volunteers focused on ensuring voices of younger generations are heard in conversations about AI’s impacts. Encode has contributed to various pieces of AI state and federal legislation in addition to SB 1047, including the White House’s AI Bill of Rights and President Joe Biden’s executive order on AI.

The meek may inherit the earth, but in the stock market, winners usually keep on winning. Still, there’s money to be made betting on some of 2024’s biggest losers.

As much as we like to be contrarians, we know that markets are generally a momentum game. Look no further than the Invesco S&P 500 Momentum exchange-traded fund, which has gained 47.2% this year, compared with the S&P 500 index’s 25.2% rise. The fund’s biggest positions include Amazon.com, Nvidia, Broadcom, Meta Platforms, and Berkshire Hathaway. When markets are trending higher, buying stocks with strong momentum on the dips is generally the way to go.

But we are contrarians. We like thinking about what could go wrong for the stock market’s biggest winners, and we really love figuring out what could go right for its biggest losers. Sometimes that leads us to make mistakes—recommending Albemarle this year wasn’t one of our finest moments —but it can really pay off when we get it right. PayPal Holdings, for instance, has gained 41% since we recommended it in March.

And there look to be plenty of contrarian picks to make as the year comes to a close. About a third of the companies in the S&P 500 were in the red as of the close of Dec. 23, and just 142 had topped the index. Many of them underperformed for a reason— Walgreens Boots Alliance, which is in talks to go private; potato product maker Lamb Weston, which recently ousted its CEO after reporting a surprise loss; and Paramount Global, which is merging with Skydance Media, among them—but it still leaves plenty of stocks to sort through.

Where to begin? JC O’Hara, chief market technician at Roth MKM, recommends looking for stocks that are “massively oversold” and approaching levels that could serve as “zones of support” for a rebound. He found 28, including household names like Nike, Ulta Beauty, Merck, and Boeing. Others are less well known, but intriguing: payments company Global Payments, medical-device company Zimmer Biomet Holdings, and analog semiconductor manufacturer Skyworks Solutions.

Ulta looks particularly interesting. It started off the year with a bang, reaching $567.18 a share by the middle of March. From there, it was a long ride down, starting with a March earnings report that featured lackluster guidance. From March 13 through Aug. 12, the stock dropped 43%. Then a Berkshire Hathaway filing revealed that the company had bought shares, and the stock has bounced 36% since then.

Things do seem to be looking up. Placer.ai notes that it was among the big winners of Super Saturday, the last shopping day before Christmas, with traffic up 50% from 2019, while Deutsche Bank notes that the company’s Dec. 6 earnings report revealed growth at stores open at least 13 months—so-called same-store sales—something that “refuted the bear case that it is a share donor in the beauty space.”

Betting on a Boeing bounce sure feels contrarian. Yes, about 55% of analysts still rate the stock a Buy, but that’s the fewest since June 2021. And the company has a new CEO in Kelly Ortberg, who will try to do what Dave Calhoun couldn’t. Early results are looking good. The machinists strike ended, while the company resumed making the 737 Max earlier this month.

A lot still needs to go right from here: The company has to accelerate production; quality control needs to improve; and Boeing is still trying to acquire Spirit AeroSystems, which makes its fuselages. It’s all very complicated and loaded with risk, but the upside potential if the company can avoid the potential pitfalls is undeniable.

Sure, none of these stocks look like slam dunks, and even O’Hara says some “are not ‘quite there’ yet” and could require patience. That’s what makes being a contrarian fun. If it were easy, it would be called momentum investing.

Against the Odds: How Argentina and Turkey Delivered Superior Stock Returns

U.S. exceptionalism is all the rage, but U.S. stocks weren’t the only big winner in 2024—or even the biggest.

With all the talk of the Magnificent Seven, stock bubbles, and the Trump Trade, it’s easy to believe that the U.S. markets crushed every country in the world this year. Not quite. The champion by a long way was Argentina, whose Merval stock index nearly tripled in value. The S&P 500

rose a mere 25%. Three other emerging markets outperformed the S&P: Turkey, Hungary, and Taiwan. So did Israel, which graduated to developed-market status in 2010.

These aren’t necessarily the countries casual news readers would pick to be this year’s big winners. They aren’t necessarily the best bets longer term. They also come with a considerable asterisk: Local indexes reflect local-currency gains, which can be offset for dollar investors by devaluation. The iShares MSCI Turkey exchange-traded fund advanced a modest 9%, compared with 31% for the local-currency index.

Still, there’s a lesson here for a financial world increasingly driven by passive funds and quantitative formulas. Correct bets on which way the wind is blowing can still earn outsize profits. Argentina and Turkey were those bets in 2024. Argentine President Javier Milei took over a basket case in December 2023. His budget-slashing shock therapy tamed hyperinflation and built up currency reserves, without the widely feared rioting in the streets.

In Turkey, veteran leader Recep Erdogan changed course himself after winning another presidential term in May 2023. His new economic team has jacked up interest rates to 50% and clamped down on subsidized credit to wring out inflation, which he had stoked with ultra-loose money.

Neither country is close to stable prosperity. But both have pulled themselves out of tailspins. “I make my money when a situation goes from hopeless to a little less terrible,” comments Edward Al-Hussainy, senior currency analyst at Columbia Threadneedle Investments.

Taiwan had a bumper year for a different reason: super-concentration of the semiconductor and artificial-intelligence-adjacent stocks that outperformed globally. Information technology companies make up nearly two-thirds of its stock market, according to iShares, with foundry king Taiwan Semiconductor Manufacturing accounting for more than 20% all by itself.

Israel had tech and geopolitics on its side. IT accounts for about 35% of market cap, led by companies like Check Point Software Technologies and CyberArk Software. Stocks also benefited from investors’ perception that the war in Gaza could be winding down and the civilian economy normalizing, enabling those tech stars to catch up with global peers. Israel’s TA-125 Index jumped 20% in the second half of 2024.

Another 2024 takeaway: Cheap valuation can still drive returns. Germany is Exhibit A. The economy remained mired near recession. Industrial icon Volkswagen signaled the first domestic factory closures in its history. Chancellor Olaf Scholz’s fractious coalition government collapsed. Yet German stocks were cheap enough to advance 18% anyway. Investors snapped up perceived bargains in nonautomotive icons from Siemens Energy to Deutsche Bank and business software giant SAP. Hungary and the Czech Republic, Germany’s effective economic suburbs, did even better on an index basis.

There are lessons from the losers as well. Mexico was the world’s worst-performing major market this year in local-currency terms, with a 17% decline. Outgoing President Andres Manuel Lopez Obrador was largely to blame: He rammed through a crippling judicial “reform” during his last month in office and busted the budget on dubious infrastructure projects like the $30 billion-ish “Maya Train” in southern Mexico. Donald Trump’s election north of the border, with renewed threats to free trade with the U.S., didn’t help either.

Brazil was nearly as bad as Mexico in local-currency and much worse in dollar terms. Investors bailed as President Luiz Inácio Lula da Silva turned to smoke and mirrors on fiscal policy, and the central bank hiked interest rates again to ward off inflation.

Many investors have lost interest in international stocks after years of U.S. outperformance. That has made sense in a world of U.S. exceptionalism, especially if all international markets are lumped together. As Mexico and Brazil demonstrate, bad performers can always drag down the good ones. But with care, diligence, and a little bit of luck, there’s still good money to be made beyond U.S. borders.

You can bet on that.

Once known as safety plays, shares of electricity suppliers are getting a jolt from AI data centers.

Utility stocks have had a strong year, rising 20% after a difficult 2023. Now the industry is dividing—between names that can profit from the explosive demand from artificial intelligence, and those likely to grow more slowly. Some probable winners include Louisiana-based Entergy, Indiana’s NiSource, Idaho’s Idacorp, Pennsylvania’s PPL, Arizona’s Pinnacle West, and Minnesota’s Xcel Energy.

Utility stocks have had a strong year, rising 20% after a difficult 2023. Now the industry is dividing—between names that can profit from the explosive demand from artificial intelligence, and those likely to grow more slowly. Some probable winners include Louisiana-based Entergy, Indiana’s NiSource, Idaho’s Idacorp, Pennsylvania’s PPL, Arizona’s Pinnacle West, and Minnesota’s Xcel Energy.

Historically, utility stocks have offered havens for investors seeking steady quarterly dividends and protection from economic downturns. Even when consumers are hurting, they tend to pay their electric bills. Those attributes still matter, but they’re not the main reason to buy utility stocks today.

That’s because the utility industry has hitched a ride on one of the biggest investing themes of 2024—artificial intelligence. Utilities provide electricity for giant AI data centers going up around the U.S. For most of the past year, the trend was a boon for a very small and specific subset of the electricity-generating industry. Stocks of a handful of so-called independent power producers, such as Constellation Energy, Vistra, and Talen Energy, have doubled or tripled. Those companies own natural-gas and nuclear plants and sell power into competitive markets. They can make direct deals with big tech firms and aren’t hamstrung by a regulated rate structure that limits earnings for most utilities.

By comparison, regulated utilities are overseen by public commissions tasked with keeping electricity prices low for consumers and making sure service is reliable. They limit utilities’ earnings potential. But some utilities are starting to figure out ways to profit from the AI craze, too, by inking special deals with big tech companies to power their data centers.

New Orleans–based Entergy, for instance, just announced an agreement with Facebook owner Meta Platforms to build three natural-gas plants that will serve a $10 billion data center in rural Louisiana, which will be almost twice the size of the Superdome. This is no average electricity deal. In utility commission filings, Entergy said Meta has already paid upfront to reserve gas turbines and transmission lines for the project, and has agreed to bear the cost if the project falls apart. In addition, the tech giant will pay a minimum monthly charge to cover “the full annual revenue requirement for the planned generators” for 15 years.

With Meta carrying so much of the financial load, Entergy can grow its “rate base”—the value of assets and operations that sets the baseline for the company’s legal rate of return—without burdening existing customers. The Meta transaction will allow Entergy to boost its earnings growth rate from 6% to 8% this year to 8% to 9% starting in 2026.

Not every utility can sign deals like this. In much of the country, utilities control wires, transformers, and poles that make up the grid, but not the assets that generate the power such as nuclear or natural-gas power plants. And some states have barriers to getting power on the grid quickly. In New York and Massachusetts, stringent environmental goals make it difficult to add new natural-gas plants. Companies that face restrictions on how they can provide power have trailed this year; Massachusetts-based Eversource is down 12% in 2024, New York’s Consolidated Edison has dropped 4%, and Illinois’ Exelon is flat.

Entergy doesn’t face those same restrictions. The company has environmental goals and may eventually add renewable power and carbon-capture technology to serve the Meta project. But its goals aren’t as ambitious as they are for other utilities. And it’s working in states that welcome new data-center investment—and even give out tax breaks to attract it. Louisiana recently started offering rebates for sales and use taxes on data-center equipment. And Mississippi put together a lucrative package for Amazon.com to build a similarly enormous data-center complex there, exempting the company from corporate income taxes for 10 years and waiving sales and use taxes on equipment.

“In other parts of the country, this wouldn’t happen,” says Rodney Rebello, an analyst covering power stocks at Reaves Asset Management.

Reaves invested in this trend early, tilting its portfolio toward utility stocks most likely to benefit from data-center trends. That’s why its Virtus Reaves Utilities exchange-traded fund is up over 40% this year, trouncing the return of the average utility. Rebello thinks there’s more momentum ahead, with several utilities disclosing that they’re in conversations with major tech names. He’s focusing on companies with the right regulatory structure that are small enough that a few data-center deals will change their earnings trajectory. Entergy is still one of his favorites, despite already rising 44% this year. Other names that can benefit include Idacorp, NiSource, Pinnacle West, and Xcel Energy, he says. For some of those, access to clean-energy sources are a big draw for data-center customers; Idacorp, for instance, benefits from Idaho’s abundant and cheap hydroelectric power.

Other analysts are also warming to the trend. J.P. Morgan and Morgan Stanley both like PPL, a utility serving Pennsylvania, Kentucky, and Rhode Island, for its potential to profit off data-center deals.

Regulated utilities have been considered play-it-safe stocks for years, and many still offer that downside protection. J.P. Morgan thinks “utilities have the best risk-reward of all the defensive bond proxies” heading into 2025. But several are on offense now, too. Morgan Stanley likes utilities because of their “underappreciated growth upside.”

It’s rare for one sector to offer both risk protection and growth potential. This looks like one of those opportunities.