TransAlta Corporation: A Strategic Play on the Data Center Boom

Research Report | October 2025

Axum Group of Companies - Investment Research Division

Key Takeaways

TransAlta Corporation (NYSE: TAC, TSX: TA) presents a compelling investment opportunity for those seeking exposure to the explosive growth in data center power demand driven by artificial intelligence.

📈 Stock Performance Highlights:

• +107% return over 2 years (from ~$8.25 to $17.05)

• +66% return in the past year

• Trading near 52-week high of $17.69

• Analyst consensus: BUY with $19.88 average price target (16% upside)

Company Overview:

114 Years of Power Generation Excellence

The Basics

• Founded: 1909 (114+ years of operations)

• Headquarters: Calgary, Alberta, Canada

• Market Cap: $5.05 billion USD

• Total Capacity: 9,014 MW across 66 facilities

• Renewable Mix: ~3,600 MW (40% of portfolio)

Geographic Diversification

TransAlta operates across three continents:

• Canada: Primary market (Alberta focus)

• United States: Western operations

• Australia: Renewable projects

The Data Center Catalyst: A $400 Billion Opportunity

The AI Power Revolution

The artificial intelligence boom is creating an unprecedented demand for electricity:

🔋 Staggering Growth Projections:

• Global data center power consumption to double by 2030 (415 TWh to 945 TWh)

• North America needs 50-60 GW of new generation capacity

• Individual AI models currently consume 100-150 MW each

• Future models could require 4-16 GW by 2030

Tech Giants Going Nuclear (Literally)

Microsoft, Google, Amazon, and Meta are aggressively pursuing power deals:

• Direct partnerships with generators

• Nuclear power purchases

• Premium pricing for 24/7 reliability

• Long-term contracts (10-20 years)

TransAlta's Strategic Alberta Data Center Initiative

The Game Plan

TransAlta is positioning itself at the epicenter of Canada's data center boom through its Alberta strategy:

🎯 Target Capacity:

• Phase 1: 400 MW from Keephills facility

• Expansion potential: Up to 800 MW

• Timeline: 18-24 months from agreement to operation

🏆 Competitive Advantages:

• Existing infrastructure: No 2-4 year construction delays

• Dual-direction capability: Serve data centers OR grid (99.999% reliability)

• Strategic location: Alberta's deregulated power market

• AESO allocation: 1.2 GW Phase 1 capacity approved

The Alberta Opportunity

• 29 data center applications requesting 16 GW (more than provincial peak demand!)

• Deregulated market allows premium pricing

• Established transmission infrastructure ready to go

Financial Performance:

Strong Fundamentals Despite Volatility

2024 Full Year Results

Metric	Value	Change
Revenue	$2.85B	-15.2%
EBITDA	$1.10B	-35.8%
EBITDA Margin	38.7%	-
Free Cash Flow	$475M	Positive
Debt-to-Equity	2.47x	Elevated

What the Numbers Mean

✅ Positives:

• Strong free cash flow generation ($475M)

• Healthy EBITDA margins (38.7%)

• Q2 2025: +10% EBITDA growth year-over-year

• 6 consecutive years of dividend increases

⚠️ Watch Points:

• Revenue decline due to lower Alberta power prices

• Elevated leverage from Heartland acquisition

• Near-term earnings volatility

The Investment Thesis: Why TransAlta Now?

🚀 Bull Case: Five Reasons to Buy

1. First-Mover Advantage in Data Centers

• Existing infrastructure = speed to market

• Premium contract economics with tech giants

• 18-24 month timeline vs. 4+ years for new builds

2. Structural Power Market Tightening

• AI data centers

• Electric vehicle adoption

• Industrial electrification

• Population growth in Alberta

3. Renewable Energy Transition

• $3.5B committed through 2028

• Target: 70% renewable EBITDA by 2028

• All projects backed by long-term contracts

4. Undervalued vs. Peers

• Trading at 23x free cash flow

• 16% upside to analyst targets

• Lower multiple than comparable utilities

5. Proven Management Track Record

• Successful coal-to-gas conversion

• 70% GHG reduction since 2015

• Strategic acquisitions (Heartland)

⚠️ Bear Case: Key Risks to Consider

1. Alberta Market Volatility

• Energy-only market creates earnings swings

• Recent power prices: $40-60/MWh (below 2023 peaks)

2. Elevated Leverage

• 2.47x debt-to-equity ratio

• Limited financial flexibility

• Refinancing risk in higher rate environment

3. Data Center Execution Risk

• No definitive agreements yet (still in negotiations)

• Competition from other generators

• Technology/AI growth could slow

4. Regulatory Uncertainties

• Carbon pricing increases

• Grid connection complexities

• Municipal resistance to data centers

Competitive Landscape: How TransAlta Stacks Up

vs. Capital Power (Primary Competitor)

Factor	TransAlta	Capital Power
Alberta Exposure	Heavy	Moderate
1-Year Return	+66%	+42%
Data Center Strategy	Advanced	Active
Risk/Reward Profile	Higher/Higher	Lower/Lower

Sustainable Competitive Advantages

• Existing Alberta infrastructure (impossible to replicate quickly)

• 114-year operational history and regulatory relationships

• Energy trading expertise (optimization above market pricing)

• Diversified fleet (renewable + gas flexibility)

Analyst Coverage:

Wall Street Weighs In Consensus View: Strong Buy

📊 Analyst Ratings (9 total):

• Buy/Strong Buy: 8 analysts

• Hold: 1 analyst

• Sell: 0 analysts

🎯 Price Targets:

• Average: $19.88 USD (16% upside)

• Range: $14.00 - $27.00

• Recent upgrades: BMO (Hold → Strong Buy)

Valuation Metrics

• Price/Free Cash Flow: 23.16x (reasonable for growth)

• EV/EBITDA: ~5.5x

• Sum-of-parts analysis: Suggests 50%+ upside potential

Investment Strategy: How to Play TransAlta

💡 Recommended Approach

Position Sizing: 5-10% of portfolio

• Suitable for aggressive growth investors

• Higher risk/reward than typical utilities

• Tactical allocation rather than core holding

Entry Strategy Options:

1. Core Position: Buy 60-70% at current levels (~$17)

2. Add on Weakness: Deploy remaining on pullbacks to $14-15

3. Catalyst-Driven: Wait for data center agreements (risk missing gap-up)

📈 Key Monitoring Metrics

Quarterly Tracking:

• Data center contract announcements

• Alberta power prices (spot & forward)

• Free cash flow generation

• Debt-to-equity progress

• Renewable project additions

Exit Triggers:

• No data center contracts within 12-18 months

• Sustained power prices below $30/MWh

• Debt-to-equity exceeds 3.0x

• Dividend cut announcement

The Macro Picture: Sector Tailwinds

🌟 Utilities Leading 2025

• S&P 500 Utilities: +23.7% YTD (sector leader)

• Flight to quality amid market uncertainty

• Data center demand driving entire sector

• Attractive yields in challenging rate environment

Global Energy Investment

• Canada renewable investments: $143-205B through 2035

• Global renewable capacity: Record 510 GW added in 2024

• Natural gas renaissance: AI requires dispatchable power

Final Verdict: Is TransAlta Right for You?

✅ Best Suited For:

• Growth-oriented investors seeking AI/data center exposure

• Canadian market participants wanting utility sector play

• Income investors comfortable with higher volatility

• Thematic investors focused on energy transition

❌ Not Ideal For:

• Conservative income seekers (higher risk than traditional utilities)

• Short-term traders (18-24 month data center timeline)

• Leverage-averse investors (2.47x debt-to-equity)

The Bottom Line

Investment Rating: BUY (Speculative Growth)

Price Target: $20-22 USD (12-18 month horizon)

Risk Level: Moderate-High

TransAlta sits at the intersection of three powerful trends: AI infrastructure buildout, renewable energy transition, and power market tightening. While risks exist around leverage and execution, the company's strategic positioning in Alberta's data center boom creates significant upside potential.

The next 12-18 months will be critical as TransAlta either validates its data center strategy through signed agreements or faces renewed questions about market exposure.

For investors seeking exposure to the multi-trillion dollar AI infrastructure buildout, TransAlta offers one of the more direct and attractively valued vehicles in the Canadian market.

About Axum Holdings

Disclaimer: This content is for informational purposes and is not investment advice. Past performance does not guarantee future results. All investing involves risk. Consult a professional before making major investment decisions.

About Axum Holdings: Founded in 2012, Axum is a private investment holding company focused on steady cash flow and long-term value through diversified holdings.