Sempra (SRE) | The Buildout — AI Infrastructure
The Verdict
Sempra is a holding company that owns regulated utilities: San Diego Gas & Electric and SoCalGas in California, and an equity stake in Oncor, a wires-only transmission-and-distribution utility in Texas. It also owns Sempra Infrastructure, which develops and runs LNG and energy infrastructure in the U.S. and Mexico and is being partly sold to KKR. For the AI build-out the relevant asset is Oncor: data-center campuses need interconnection capacity and extra-high-voltage transmission, and that demand lands on Oncor's regulated wires.
| Market Cap | — |
| Revenue (TTM) | $13.6B |
| Revenue Growth | +2.8% |
| EBITDA Margin (TTM) | 45.3% |
| Net Debt | $36.5B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Oncor's large-load queue is 289 GW, of which 271 GW is data-center related; the substantiated figure tripled in one quarter, from about 38 GW to about 127 GW.
- A record $65B capital plan runs through 2030, with about $47.5B at Oncor, supporting rate-base growth management projects at roughly 11% a year.
- Oncor's base rate review was approved with a 9.75% authorized ROE and a 43.5% equity layer, up from an earned-ROE forecast just below 8% about 18 months earlier.
- The inaugural Oncor UTM filing moved $4.4B of T&D assets toward rates and can be refiled every 365 days, shortening regulatory lag.
- The pure-play pivot is advancing: most approvals for the KKR/SI Partners sale are obtained, and the Ecogas sale closed 2026-08-20.
What We’re Watching
- The ~$9–10B incremental Texas capital bucket is still pending and is being firmed up.
- ERCOT's Batch 0 process runs to June 2027 and could change how much load qualifies; management said the rules were still in discussion.
- California wildfire legislation (SB 254) is unresolved this session — the state's largest policy tail risk.
- The prior 2%–4% annual dividend-growth commitment went silent; the quarterly dividend has stayed at $0.6575 per share.
The thesis is intact and leans stronger on the regulated side: the capital plan is contracted, Oncor's allowed return rose to 9.75%, and the new rate mechanisms are already showing up in earnings. What is unproven is the AI layer — the load queue is accelerating, but conversion to steel-in-ground is on a 2027-and-later clock and the incremental bucket that would carry it is still unsized. The open question is whether the ~$9–10B incremental bucket moves into the base plan, and when.
Earnings Beat
Sempra's Q2 FY2026 revenue was $2,997M, with gross margin of 54.7% and EBITDA of $1,444M, a 48.2% margin. GAAP net income was $796M, or $1.21 per diluted share, versus $461M a year earlier; adjusted earnings were $762M, or $1.16 per share. The standout was Oncor, where net income of $428M compared with $259M a year earlier as new base rates, the surcharge and UTM mechanisms began flowing.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $3.0B | $3.7B | $3.0B | −0.1% |
| Gross margin | 54.7% | 52.6% | 25.0% | +2970bps |
| EBITDA | $1.4B | $1.7B | $1.2B | +16.7% |
| EPS | $1.22 | $1.59 | $0.72 | +67.8% |
| Oncor net income | $428M | n/a | $259M | +$169M |
our total queue right now for large load is at 289 gigawatts, of which 271 gigawatts are data-center related.— Allen Nye, Oncor CEO, 2026-05-07
Management tone: On the most recent call (Q1 FY2026, 2026-05-07), management's tone was confident on Texas and disciplined about the base plan. A quarter earlier they had described 'high confidence' around ~38 GW of large load; this call cited a 289 GW queue with 271 GW data-center related, while repeating that the base plan does not turn on large-load additions. They were specific on the concrete items — the SI Partners closing steps, three years of secured base-plan supply — and candid on the soft spots, saying outer-year supply was 'not yet papered or executed,' labor was 'tight,' and ERCOT rules were still in discussion.
Management Guidance
On the Q1 FY2026 call, management affirmed FY2026 adjusted EPS of $4.80–$5.30, FY2027 EPS of $5.10–$5.70, and long-term EPS growth of 7%–9%. It reaffirmed rate-base growth of roughly 11% annually through 2030 and a Texas rate-base mix of about 60% by the end of the decade, against a $65B capital plan for 2026–2030 with 95% allocated to utility investments in Texas and California. The prior 2%–4% annual dividend-growth commitment was not reaffirmed.
Trajectory
The top line is choppy and weather-driven — Q2 FY2026 revenue of $2,997M was roughly flat against $3,000M a year earlier, and Q1 was down slightly year over year. That is a commodity and weather story, not a demand story: a regulated utility passes gas costs through, so lower prices and warmer weather cut reported revenue without cutting margin. Margins are expanding, with EBITDA margin at 48.2% in Q2 FY2026 versus 41.2% a year earlier. The growth engine is regulated rate base rather than the top line, which is why Oncor's equity earnings and the new rate mechanisms matter more than reported revenue. Cash conversion is a watch item — trailing free cash flow is deeply negative against net income.
The Model
The model projects FY+1 revenue of $13,200M and EBITDA of $6,125M, a 46.4% margin, then FY+2 revenue of $12,318M and EBITDA of $5,814M, a 47.2% margin. The near term leans on the regulated capital plan and the rate mechanisms now flowing into earnings. FY+2 shows slightly lower revenue at a higher margin, consistent with a mix that leans more on regulated utility earnings as the infrastructure business is deconsolidated.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $13.7B | $13.2B | $12.3B |
| YoY Growth | — | −4.0% | −6.7% |
| EBITDA | $5.8B | $6.1B | $5.8B |
| EBITDA Margin | 42.5% | 46.4% | 47.2% |
Projections are the median of 5 independent model runs. The model’s revenue sits 8.6% below analyst consensus.
On the Q1 FY2026 call, management affirmed FY2026 adjusted EPS of $4.80–$5.30, FY2027 EPS of $5.10–$5.70, and long-term EPS growth of 7%–9%. It reaffirmed rate-base growth of roughly 11% annually through 2030 and a Texas rate-base mix of about 60% by the end of the decade, against a $65B capital plan for 2026–2030 with 95% allocated to utility investments in Texas and California. The prior 2%–4% annual dividend-growth commitment was not reaffirmed.
What Could Go Right — and Wrong
- The ~$9–10B incremental Texas capital bucket moves into the base plan, turning queued load into contracted rate base.
- SI Partners closes on schedule in Q2/Q3 2026, with rating-agency thresholds moving at 'closing plus six months.'
- FERC approves the SDG&E TO6 settlement — 10.28% ROE and 54% equity, retroactive to 6/1/2025.
- California wildfire legislation passes this session, removing the state's largest tail risk.
- The unsized 'incremental to the incremental' layer is quantified and tied to contracted load, extending growth past 2030.
- ERCOT rule changes shrink the qualifying load, weakening the incremental-capital case.
- The SI Partners close slips or fails; the remaining consents sit with the Cameron partners and the Japanese export credit agencies.
- Hyperscalers build behind the meter, leaking large-load growth away from Oncor's wires.
- Labor tightness and unpapered outer-year supply delay converting queue into capex.
- Rising interest expense and lower tax benefits keep California earnings flat even as operating margin improves.
Looking Ahead
Over the next 12 months the milestones are regulatory and transactional: the SI Partners close (Q2/Q3 2026), FERC approval of the SDG&E TO6 settlement (2H 2026), an Oncor UTM final order or interim rates around October 4, and the June 2026 SDG&E GRC filing. On the AI side, the ERCOT Batch 0 process runs from July 2026 to June 2027, so the load queue will not convert to steel-in-ground quickly, and the ~$9–10B incremental capital bucket is still being firmed up.
- Q2/Q3 2026SI Partners close — 45% stake sale to KKR; needs Cameron partner, Japanese ECA consents.
- 2H 2026FERC TO6 decision — SDG&E settlement seeks 10.28% ROE, retroactive to 6/1/2025.
- Later in 2026Incremental capital update — The ~$9–10B Texas bucket is still being firmed up.
- ~Oct 4 2026Oncor UTM interim rates — Interim rates if no final order on $4.4B of assets.
- Through June 2027ERCOT Batch 0 process — Inclusion criteria July 2026; RPG submission June 2027.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $13.0B | $13.7B | $13.6B | +6.1% |
| Gross Margin | 26.6% | 28.9% | 41.8% | +240bps |
| EBITDA | $5.3B | $5.8B | $6.2B | +11.0% |
| EBITDA Margin | 40.7% | 42.5% | 45.3% | +187bps |
| Net Income | $2.9B | $1.8B | $2.3B | -35.8% |
| Free Cash Flow | −$3.3B | −$6.0B | −$5.9B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)41.8%
- EBITDA Margin (TTM)45.3%
- Net Margin (TTM)16.8%
- ROIC4.2%
- FCF Conversion-95.7%
- SBC / Revenue0.5%
The Company
Sempra's main businesses are regulated utilities. In California it owns SDG&E, which provides electric service to a population of about 3.6 million, and SoCalGas, a gas distribution, transmission and storage system serving about 21.3 million people. In Texas it holds equity-method stakes in Oncor and Sharyland, which own regulated transmission-and-distribution utilities. A third piece, Sempra Infrastructure, develops and runs LNG and energy infrastructure in the U.S. and Mexico.
The company is mid-pivot. Management says it is becoming 'a pure-play utility business,' and it is executing a record $65 billion capital plan through 2030, 95% of it at utilities in Texas and California, supporting rate-base growth it projects at roughly 11% a year. It is recycling capital out of LNG: a 45% stake in Sempra Infrastructure is being sold to KKR, the Ecogas sale closed 2026-08-20, and Sempra expects almost 60% of its rate base to sit in Texas by the end of the decade. Oncor is booked as an equity-method investment rather than a consolidated segment, so its earnings flow through as equity earnings.
Business Segments
Competitive Landscape
Oncor is a regulated monopoly wires utility inside ERCOT, so the competitive question is not who else can connect the load but whether the load connects to the wires at all. No individual competitor to Oncor is named in the source material.
Supply Chain
Sempra sits at the wires layer of the AI build-out: Oncor's transmission connects large loads in ERCOT. Its supply chain is long-lead equipment and construction labor; the named suppliers sit in the LNG build and gas transportation.
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