Group 1 - The current excitement around AI is leading to a risk-taking environment among investors, with a potential for a market reset in the future [2][5][15] - There is a significant increase in capital expenditures (capex), with expectations for annual investments to nearly triple to over $2 trillion by 2030, driven by various industries beyond just technology [8][9] - The market is currently experiencing supernormal growth, with companies in the AI sector seeing annual growth rates of about 40% over the past five years [3][12] Group 2 - The conversation around AI is evolving, with a shift from heavy capex to the application of technology expected, although this transition has not yet fully occurred [4][11] - There is a belief that the current investment landscape is not indicative of a bubble, as substantial investments are being made across multiple industries, including utilities and industrials [11][12] - The performance of stock prices is closely tied to the ongoing bullish sentiment around AI, with companies rewarded for increasing their capex spending [18][20]

Investment Rating - The report assigns an "Overweight" rating to SSE, indicating that the stock's total return is expected to exceed the average total return of the analyst's industry coverage universe over the next 12-18 months [5]. Core Insights - SSE's FY25 results were solid, with a headline EPS of 161p, which was broadly in line with consensus expectations of 159p [7][8]. - The company has reduced its 5-year capex plan from £20.5 billion to £17.5 billion, which is seen positively as it alleviates market concerns regarding balance sheet gearing and funding for network growth capex [3][7]. - The target for renewable capacity by FY27 has been lowered from 9GW to approximately 7GW, which reflects a cautious approach to capital allocation [3][12]. - The market may interpret the capex reduction as a positive signal regarding the upcoming UK Electricity Transmission regulatory review [3][12]. - SSE's share price has shown a recovery of 12% year-to-date, outperforming the FTSE 100 and the Utilities Sector [3]. Financial Performance Summary - For FY25, SSE reported EBIT of £2.4 billion, with adjusted headline numbers excluding a £250 million non-cash impairment in the Southern European Renewables pipeline [8][12]. - The company indicated a dividend per share (DPS) of 64.2p, which aligns with expectations and represents a 7% year-on-year growth [8][12]. - The FY27 EPS guidance was reiterated at 175-200p, which is expected to be supported by regulated inflation-linked contracts [13][12]. Future Guidance - The report notes that SSE did not provide explicit EPS guidance for FY26, but estimates suggest operating profit of £2.3-2.4 billion and EPS of 156-159p, which is marginally below consensus expectations [9][12]. - The company anticipates 40% growth in renewable volumes by FY27, implying a total of 18.6 TWh [13]. - SSE's balance sheet at the end of FY25 showed net debt of £10.2 billion, in line with consensus, and a net debt to EBITDA ratio of 3.2x [12].