Morgan Stanley has reiterated a favorable outlook on Europe’s utilities sector, arguing that a combination of energy security priorities, broader electrification and rising demand linked to AI and data centres is reshaping investment opportunities across the region.
In its most recent sector note the bank maintained an "Attractive" rating on utilities and named three high-conviction picks it views as particularly well placed to capture value as countries upgrade transmission systems, connect large-scale renewable projects and prepare for higher electricity consumption from electric vehicles, heat pumps and data-centre loads.
National Grid
Morgan Stanley describes National Grid as a clear long-term beneficiary of what it calls an electricity infrastructure boom. The broker expects power networks to gain in strategic importance as transmission systems are modernised and new renewable generation is tied into grids.
The firm points to National Grid's combination of visible regulated asset growth and a defensive earnings profile. Within Europe, the UK is singled out by Morgan Stanley as likely to remain among the faster-growing markets for grid investment, underpinning National Grid's exposure to planned upgrades and expansion.
Engie
Engie is identified as an emerging play on energy security and infrastructure, a view reinforced by its acquisition of UK Power Networks. Morgan Stanley notes the company is increasing its exposure to electricity networks while retaining an integrated generation portfolio.
That mix of network assets and generation capacity, the broker says, leaves Engie positioned to benefit from higher overall power demand and from Europe’s stated aims to reduce dependence on imported fossil fuels. Morgan Stanley also highlights Engie's optionality in flexible generation and its potential to capture rising electricity demand tied to data-centre growth.
Ørsted
Morgan Stanley upgraded Ørsted to "overweight" and added it to the top-pick list, pointing to what it judges to be the most significant upside among its coverage universe. The broker argues the offshore wind developer is well situated to gain from renewed European energy security policies that are expected to speed up renewable capacity additions over the next decade.
In the note Morgan Stanley says that easing concerns around US offshore wind projects, improved balance sheet flexibility and the prospect of higher long-term power prices are factors that could prompt a further re-rating of Ørsted's shares. The report highlights an estimated 38% upside to the stock's price target, the largest in its coverage.
Overall, Morgan Stanley's update underscores a strategic shift in how the broker views utilities - from traditional generation-focused companies to those with meaningful exposure to regulated networks, flexible generation and the electricity demands driven by electrification and digital infrastructure. The three named names reflect distinct ways investors might access the structural growth in grid investment and renewable capacity additions that Morgan Stanley expects across Europe.