The Southern Company (SO) | The Buildout — AI Infrastructure
The Verdict
The Southern Company is a Southeast utility holding company whose electric operating companies own generation, transmission, and distribution, with a wholesale generation arm and natural gas distribution utilities. That vertical integration lets it offer hyperscalers and data-center developers a single contracted path to power, from grid connection through new generation and transmission. Its role in AI infrastructure is demand-side: it builds and operates the regulated electric system data centers plug into.
| Market Cap | — |
| Revenue (TTM) | $30.2B |
| Revenue Growth | +6.4% |
| EBITDA Margin (TTM) | 44.2% |
| Net Debt | $74.1B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Contracted large load rose from more than 11 GW at Q1 2026 to more than 17 GW by the mid-2030s, including 6 GW signed in Q2 2026.
- Data center usage growth accelerated from +42% year over year in Q1 2026 to +55% in Q2 2026; systemwide data center load exceeds 1.2 GW.
- Contracts include minimum bills covering at least 100% of incremental cost to serve and roughly $21 billion of collateral across the 17 GW portfolio.
- Management has 10 GW of approved new generation and active Georgia and Alabama RFPs for another 2–6 GW, with no placeholders in the capital plan.
- Dividend raised to $3.04 per share, the 25th consecutive annual increase; Georgia and Alabama retail base rates held stable until 2029.
What We’re Watching
- Whether the 3 GW near-term late-stage tranche signs, with ramps beginning 2028 and beyond.
- Georgia Power RFP selection by year-end 2026 and PSC certification through 2027 determine company-owned rate-base upside.
- County-level data-center moratoriums and Georgia PSC politics; management says no statewide moratoriums exist today.
- Southern Power additional 300 MW of uprates and brownfield/greenfield updates expected later in 2026.
The thesis is strengthening. Contracted load jumped in one quarter, data center usage accelerated, and management tightened FY2026 adjusted EPS guidance to near or at the top of the $4.50–$4.60 range. The open question is whether Southern can convert the signed backlog into actual delivered load and company-owned rate-base investment, with RFP selection and PSC certification as the first gates.
Earnings Beat
Q2 2026 revenue was $6,977 million with a reported gross margin of 51.3%. Adjusted EPS was $1.13, $0.21 above Q2 2025 and $0.13 above management's estimate, while data center usage rose 55% year over year.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $7.0B | $8.4B | $7.0B | +0.1% |
| Gross margin | 51.3% | 46.5% | 50.1% | +120bps |
| EBITDA | $3.2B | $3.6B | $3.2B | −0.1% |
| EPS | $1.03 | $1.20 | $0.80 | +29.2% |
| Contracted large-load agreements | >17 GW | >11 GW | n/a | — |
For the second quarter of 2026, our adjusted EPS was $1.13 per share, $0.21 higher than the second quarter of 2025 and $0.13 above our estimate.— David P. Poroch, CFO, 2026-07-30
Management tone: Management's tone shifted from Q1's confidence with supply-chain caution to Q2's more declarative language, calling demand transformative and emphasizing rate stability and customer affordability. The new-nuclear stance hardened from not committing to a new unit to saying Southern Company is not going to be next.
Management Guidance
Management set FY2026 adjusted EPS guidance of $4.50–$4.60 on the Q4 2025 call. By Q2 2026, it projected full-year adjusted EPS near or at the top of that range, provided a Q3 2026 adjusted EPS estimate of $1.50, and reiterated a goal to be in the top half of its long-term earnings trajectory. No formal raise above $4.60 is disclosed.
Trajectory
Revenue is highly seasonal: Q1 FY2026 was $8,397 million, up 8.0% year over year, and Q2 FY2026 was $6,977 million. Q1's growth was driven more by a 38.0% increase in natural gas prices flowing through gas revenue than by electric strength; operating income rose only $8 million to $2,018 million. Reported gross margin compressed from 48.1% in Q1 FY2025 to 46.5% in Q1 FY2026, while Q2 FY2026 gross margin was 51.3%. Underneath, data center usage growth accelerated from +42% year over year in Q1 to +55% in Q2.
The Model
The model projects FY+1 revenue of $31,500 million and EBITDA of $14,206 million, a 45.1% EBITDA margin. FY+2 revenue rises to $34,020 million with EBITDA of $15,479 million, a 45.5% margin. The near term is anchored by the contracted large-load backlog and approved generation entering service; FY+2 adds ramps from the large-load contracts and potentially RFP-backed construction.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $29.6B | $31.5B | $34.0B |
| YoY Growth | — | +6.6% | +8.0% |
| EBITDA | $13.2B | $14.2B | $15.5B |
| EBITDA Margin | 44.6% | 45.1% | 45.5% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.9% above analyst consensus.
Management set FY2026 adjusted EPS guidance of $4.50–$4.60 on the Q4 2025 call. By Q2 2026, it projected full-year adjusted EPS near or at the top of that range, provided a Q3 2026 adjusted EPS estimate of $1.50, and reiterated a goal to be in the top half of its long-term earnings trajectory. No formal raise above $4.60 is disclosed.
What Could Go Right — and Wrong
- Georgia and Alabama RFP selections go to company-owned generation, adding unbooked rate-base investment at roughly $2 billion per gigawatt.
- The 3 GW near-term late-stage tranche signs and begins ramping in 2028 and beyond.
- OpenAI and Alabama contracts ramp on schedule, moving actual data center load from more than 1.2 GW toward the contracted 17 GW.
- Southern Power additional 300 MW of uprates and recontracting pricing upside materialize above legacy contracts.
- The $26.5 billion DOE loan agreements and tax-credit monetization reduce the financing burden as capex expands.
- Large-load projects withdraw or ramp more slowly than predicted; minimum bills protect cost recovery but do not create load growth.
- Third parties win Georgia and Alabama RFP capacity, leaving Southern with load but no corresponding rate-base investment.
- County-level data-center moratoriums spread or become statewide political constraints.
- Supply chain or labor tightness delays the approved 10 GW build and RFP-driven generation.
- Higher interest costs persist; Q1 2026 interest expense rose to $778 million and the FFO-to-debt target is 17% by 2029.
Looking Ahead
The next twelve months center on RFP selection and regulatory certification. Georgia Power expects to select its 2–6 GW all-source RFP by year-end 2026, with certification through much of 2027; Alabama is on a similar timeline. Management also expects to convert a 3 GW near-term tranche from its 8 GW late-stage pipeline, with some ramps beginning 2028 and beyond. Southern Power updates on additional uprates and brownfield/greenfield opportunities are expected later in 2026.
- Summer 2026Georgia rate reductions begin — Approved $285M annual customer savings and $50/year residential savings take effect.
- Later 2026Southern Power uprate update — Evaluates additional 300 MW of gas uprates and brownfield/greenfield options.
- Year-end 2026Georgia Power RFP selection — Tests company-owned versus third-party generation and capital-plan inclusion.
- 2027PSC certification — Certification for selected resources runs through much of 2027.
- Near-term3 GW late-stage tranche — Tests whether the near-term late-stage tranche signs and locks in conversion.
- 2028 and beyondOpenAI and Alabama ramps — First contracted large-load service phases scale actual data center load.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $26.7B | $29.6B | $30.2B | +10.6% |
| Gross Margin | 49.8% | 43.0% | 43.4% | 675bps |
| EBITDA | $12.3B | $13.2B | $97.8B | +6.7% |
| EBITDA Margin | 46.2% | 44.6% | 44.2% | 160bps |
| Net Income | $4.4B | $4.3B | $4.7B | -1.4% |
| Free Cash Flow | $201M | −$3.2B | −$9.1B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)43.4%
- EBITDA Margin (TTM)44.2%
- Net Margin (TTM)15.4%
- ROIC5.0%
- FCF Conversion19.3%
- SBC / Revenue0.4%
The Company
The Southern Company is a holding company with three operating businesses: vertically integrated electric operating companies Alabama Power, Georgia Power, and Mississippi Power; Southern Power; and Southern Company Gas. It owns generation, transmission, and distribution, sells retail and wholesale electricity, and distributes natural gas in Illinois, Georgia, Virginia, and Tennessee. Its role in the AI buildout is demand-side: it supplies the electricity, grid connection, and generation/transmission capacity that data centers and hyperscalers require.
The 10-K describes the traditional electric operating companies as vertically integrated utilities that own generation, transmission, and distribution facilities. Southern Power develops, constructs, acquires, owns, operates, and manages power generation assets, including battery energy storage, selling at market-based rates. Southern Company Gas distributes natural gas in four states and holds gas pipeline joint ventures. Total regulated utility customers at March 2026 were 9,037,000—4,600,000 electric and 4,437,000 gas. Georgia Power's Q1 2026 capex was $2,070 million, up from $1,637 million in Q1 2025, a printed signal of the accelerating build-out.
Business Segments
Competitive Landscape
The competitive dynamic is described in two ways. The 10-K states that gas distribution competes with electric utilities and fuel oil and propane providers for customers considering switching to or from natural gas appliances. Management frames the electric large-load business around the vertically integrated model's speed-to-power advantage over fragmented competitive markets, while noting Southern Power is roughly mid-90s percentage contracted and does not take merchant risk.
Supply Chain
Southern Company buys fuel, generation equipment, and construction services, then sells electricity and gas distribution to data centers, industries, and homes. The provided source material does not name specific supplier companies.
More on SO: Earnings recap