Investing.com -- U.S. utilities are ramping up investments in artificial intelligence (AI) and grid modernization, positioning themselves for long-term growth as electricity demand surges, Jefferies said in a note following its inaugural utilities and technology conference.

The brokerage highlighted a growing consensus among power companies that AI-driven efficiencies, smart grid adoption, and electrification will be pivotal in the coming years.

Management teams remain constructive on demand outlooks, with AI and industrial electrification set to drive incremental load growth, Jefferies analysts wrote.

Jefferies noted that data centers, a major consumer of power, are intensifying their push for cleaner energy, prompting utilities to accelerate renewable deployment and transmission upgrades.

The firm cited Dominion Energy (NYSE: D ) and NextEra Energy (NYSE: NEE ) as key beneficiaries of the trend.

There is continued opportunities in grid automation, dynamic line ratings, and analytics as key themes shaping the sector.

The single biggest trend remains the effort to accelerate power availability for data centers amid delays in securing firm grid connections, Jefferies noted.

Regulatory scrutiny, however, remains a headwind. While utilities see policy support for grid investments, challenges persist in securing approvals for rate adjustments and infrastructure expansion.

Jefferies also noted the potential of Dynamic Line Ratings to optimize transmission capacity and alleviate congestion.

LineVision, a startup specializing in transmission sensor technology, has identified sizable efficiency gains through retrofits in Northern Virginia’s constrained transmission network

Stakeholder engagement is crucial, as states balance decarbonization goals with affordability concerns, Jefferies added.

The brokerage also flagged potential capital inflows into nuclear and long-duration storage, underscoring investor interest in grid resilience.

Despite these tailwinds, Jefferies expects near-term volatility in utility stocks, driven by interest rate moves and regulatory uncertainties.

However, the long-term outlook remains bullish as the sector adapts to evolving energy demands.