Talen Energy To Benefit From DeepSeek, 'Lucrative Datacenter Contract': Analyst

Energy and utility stocks have been in focus after last week's launch of China’s open-source AI model DeepSeek, which promises lower energy consumption than existing AI technologies. 

Talen Energy Corp (NASDAQ:TLN) has several opportunities from datacenter growth and the contract from Amazon.com Inc's (NASDAQ:AMZN) AWS segment, according to BofA Securities.

The Talen Energy Analyst: Analyst Ross Fowler initiated coverage of Talen Energy with a Buy rating and a price target of $253.

The Talen Energy Thesis: "We are bullish based on TLN’s lucrative AWS datacenter contract with the Susquehanna nuclear plant, newly proposed RMR rates, and the prospect of higher power prices," Fowler wrote in the initiation note.

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The AWS contract, which is a power purchase agreement for 10 years, is estimated to add $110 million to Talen Energy's EBITDA starting in 2027, he added.

Talen Energy has also reached a reliability-must-run (RMR) agreement with PJM Interconnection, which should provide "a secure and accretive revenue stream," the analyst stated. After approval, the contract could guarantee $110 million in revenues from May 2025 through 2029, he further said.

Despite stiff competition and the new price cap, "higher prices would more accurately reflect market dynamics," Fowler stated.

While DeepSeek has created an overhang, "the datacenter space is likely to grow, perhaps with more urgency benefitting IPPs (independent power producers)," he further wrote.

Price Action: Shares of Talen Energy had risen by 1.68% to $225.46 at the time of publication on Monday.

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