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Electricity demand should prove resilient even if President Donald Trump’s trade war triggers a recession, according to Morgan Stanley. “We believe power demand trends are more durable than in prior cycles, in part due to the inelasticity of data center demand,” analysts led by Andrew Percoco told clients in a Monday note. “Industrial demand could decline in the near term, but reshoring of manufacturing is a long-term tailwind.” Wall Street’s bullish outlook for power demand has been a key pillar of the investment case for many energy stocks over the past 12 months. Morgan Stanley, for example, sees electricity consumption from artificial intelligence growing tenfold by 2028 to represent about 8% of total U.S. power demand. The bank acknowledged that the U.S. has entered uncharted waters with Trump making rapid policy changes that can have far-reaching effects on large capital investments. “With this in mind, we do not want to minimize the risk of a near-term ‘shock’ in demand,” Percoco said. This could translate into slowing order growth for some companies. TLN 1Y mountain Talen Energy stock performance But recessions generally have not had a big effect on power demand. Since 1960, demand has fallen by just 0.2% on average during economic downturns, according to the investment bank. The global financial crisis in 2008 had the biggest effect with electricity demand falling 4.2%. “Utilities screen favorable in a recession given their defensive nature,” Percoco said, pointing to stocks such as Consolidated Edison , Southern Company , Duke Energy and NextEra Energy . The utility sector has outperformed the S & P 500 by about 12% so far this year. Morgan Stanley is still seeing signs of strong spending on AI infrastructure from Meta , Amazon and Alphabet . The hyperscalers want to advance their early leads in AI and they have large product pipelines that need GPUs, according to Brian Nowak, the bank’s U.S. internet analyst. The bank prefers stocks exposed to the utility sector rather than the residential. Top picks include First Solar , Shoals Technologies Group , gas turbine manufacturer GE Vernova and Bloom Energy . VST 1Y mountain Vistra stock performance First Solar is down about 28% this year, Shoals has fallen 38%, Bloom has pulled back nearly 20% and GE Vernova is down nearly 3%. Independent power producers such as Talen and Vistra are more exposed during a recession, but Morgan Stanley still has a buy equivalent for both stocks on potential data center deals. Talen is basically flat year to date, while Vistra has fallen more than 16%, after the pair more than tripled in value last year. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
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