While artificial intelligence darlings and mega-cap technology names have dominated investor attention for the better part of two years, a growing chorus of Wall Street strategists is making a contrarian case that energy stocks — long dismissed as yesterday’s trade — may be poised for a significant resurgence. The thesis rests on a confluence of factors: surging electricity demand from data centers, disciplined capital allocation from oil majors, and a valuation gap that has widened to levels not seen in over a decade.

The argument isn’t merely theoretical. Several prominent analysts and portfolio managers have begun rotating capital into energy names, citing both structural tailwinds and cyclical catalysts that they believe the broader market has underappreciated. As Business Insider recently reported, top stock pickers are identifying energy and utilities as sectors primed to outperform heading into 2026, with specific names drawing concentrated interest from institutional investors.

The Data Center Power Surge Reshaping Energy Economics

At the heart of the bull case for energy is an electricity demand story that has caught much of the market off guard. The rapid buildout of artificial intelligence infrastructure — including hyperscale data centers operated by Microsoft, Amazon, Google, and Meta — is creating an unprecedented surge in power consumption. The International Energy Agency has projected that global data center electricity demand could more than double by 2030, with the United States absorbing a disproportionate share of that growth.

This isn’t a distant forecast. Utilities across the American South and Midwest are already reporting connection requests from data center operators that dwarf anything in their historical planning models. Dominion Energy, Duke Energy, and Southern Company have all flagged extraordinary demand growth in recent earnings calls. For traditional power generators and the natural gas producers that fuel them, this represents a secular demand catalyst that could persist for years — a rare commodity in an industry accustomed to boom-and-bust cycles.

Oil Majors and the Capital Discipline Revolution

Beyond the electricity narrative, the integrated oil majors have undergone a fundamental transformation in how they allocate capital. ExxonMobil, Chevron, and ConocoPhillips have all committed to frameworks that prioritize shareholder returns — through dividends and buybacks — over aggressive production growth. This discipline, forged in the wreckage of the 2020 oil price collapse, has produced balance sheets that are the strongest they’ve been in a generation.

According to the Business Insider analysis, Wall Street stock pickers are particularly bullish on companies that combine this capital discipline with exposure to growing demand segments. The logic is straightforward: companies that can generate substantial free cash flow even at moderate commodity prices, and then return that cash to shareholders, offer a compelling risk-reward profile — especially when their stocks trade at single-digit price-to-earnings multiples while the S&P 500 commands valuations north of 20 times earnings.

Utilities: From Boring Bond Proxies to AI Beneficiaries

Perhaps the most surprising element of the energy trade is the renewed interest in utilities, a sector that spent much of 2022 and 2023 in the penalty box as rising interest rates made their dividend yields less attractive relative to risk-free Treasury bonds. But the narrative has shifted dramatically. Utilities with exposure to data center demand are now being re-rated as growth stocks, a designation that would have seemed absurd just two years ago.

Vistra Corp., Constellation Energy, and NRG Energy have been among the biggest beneficiaries of this re-rating. Constellation Energy, which operates the nation’s largest fleet of nuclear power plants, has seen its stock price surge as investors price in the potential for long-term power purchase agreements with technology companies desperate for carbon-free baseload electricity. The company’s deal to restart the Three Mile Island Unit 1 reactor to supply power to Microsoft underscored just how acute the demand for reliable, clean electricity has become.

Specific Names Drawing Institutional Capital

The stock picks emerging from Wall Street’s energy rotation are notably concentrated. As Business Insider detailed, analysts are gravitating toward names that sit at the intersection of multiple tailwinds — companies that benefit from both the traditional energy cycle and the new demand drivers reshaping the sector.

Among exploration and production companies, names with low breakeven costs and significant positions in prolific basins like the Permian have drawn the most attention. These operators can generate robust returns even if oil prices remain rangebound in the $60-to-$75-per-barrel corridor that many forecasters expect. Their ability to fund generous capital return programs without stretching their balance sheets gives them a floor that growth stocks simply cannot match.

The Valuation Chasm Wall Street Can No Longer Ignore

The valuation argument for energy stocks has become almost impossible to dismiss on purely quantitative grounds. The energy sector currently trades at roughly 11 to 12 times forward earnings, a steep discount to the S&P 500’s multiple of approximately 21 times. That gap has persisted for years, but several strategists argue that the catalysts to close it are now firmly in place.

Dividend yields in the energy sector range from 3% to 6% for many of the major names, supplemented by aggressive share repurchase programs that are shrinking float at a meaningful pace. ExxonMobil alone has authorized a $50 billion buyback program, while Chevron has been reducing its share count at a rate that adds roughly 3% to 4% in annual per-share earnings growth before any operational improvement. For income-oriented investors facing an uncertain interest rate environment, these characteristics make energy stocks a compelling alternative to fixed income.

Geopolitical Risk Premium and Supply Constraints

The supply side of the equation adds another layer to the bull case. Years of underinvestment in new oil and gas production capacity — driven by ESG-related capital constraints, regulatory uncertainty, and the industry’s own capital discipline — have left global spare capacity at historically thin levels. OPEC+ continues to manage supply carefully, and any disruption to production from geopolitical hotspots like the Middle East or Russia could send prices sharply higher.

Meanwhile, the natural gas market is entering a period of structural tightening as new LNG export terminals along the U.S. Gulf Coast come online. Facilities like Venture Global’s Plaquemines LNG and Cheniere Energy’s Corpus Christi Stage 3 expansion are expected to add billions of cubic feet per day of export capacity over the next two years, creating a new demand pull for domestic gas producers. Companies like EQT Corporation and Coterra Energy, which are among the largest natural gas producers in the Appalachian Basin, stand to benefit directly from this tightening.

Risks That Could Derail the Energy Trade

No investment thesis is without risks, and the energy sector carries its share. A global recession that crimps oil demand remains the most obvious threat, particularly as economic data from China — the world’s largest incremental oil consumer — continues to send mixed signals. A sharp deterioration in Chinese industrial activity could push oil prices below the $60 level that many producers need to sustain their current capital return programs.

Regulatory risk also looms, though it has diminished somewhat under the current U.S. administration’s more permissive stance toward fossil fuel development. Longer-term, the energy transition toward renewables and electrification poses an existential question for the industry, though most analysts believe peak oil demand is still at least a decade away — and potentially further out given the energy intensity of AI infrastructure.

Why the Smart Money Is Moving Now

The timing of the energy rotation is not accidental. With the Federal Reserve signaling a cautious approach to further rate cuts and equity valuations in the technology sector stretched by almost any historical measure, portfolio managers are seeking sectors that offer both value and a margin of safety. Energy, with its combination of low valuations, high cash returns, and exposure to structural demand growth, checks those boxes in a way that few other sectors can.

As the strategists surveyed by Business Insider made clear, the energy trade heading into 2026 is not about betting on a commodity price spike. It is about recognizing that a sector generating enormous free cash flow, returning capital at record rates, and positioned to benefit from the most significant demand catalyst in a generation — artificial intelligence — is being offered at a fraction of the valuation awarded to the technology companies driving that very demand. For institutional investors willing to look past the sector’s unfashionable reputation, that disconnect represents what may be one of the most asymmetric opportunities in today’s market.