How AI Power Demand is Boosting Utility ETFs

The Utilities sector has been the top-performing S&P 500 sector over the past six months, with a gain of more than 22%. It is also the second-best performer year-to-date, just slightly behind Communication Services.

Power producers Vistra VST, Constellation Energy CEG, and NRG Energy NRG are among the top 10 performing S&P 500 stocks this year. Investors have recognized that these companies stand to benefit from the massive growth in electricity demand driven by data centers.

The sector was previously known mainly for its defensive nature and steady dividends. Historically, it has outperformed the broader market during economic slowdowns, as electricity remains essential even in challenging economic environments.

Microsoft MSFT, Amazon AMZN, Alphabet GOOGL and Meta Platforms META recently reported significant investments in AI infrastructure in their latest earnings reports. Many tech giants have also pledged to use renewable energy to power their data centers, driven by sustainability goals.

The AI boom has spurred a surge in demand for data center capacity to handle AI workloads and store the vast amounts of data they require. Data centers are substantial energy consumers, and AI applications consume even more energy than traditional computing.

According to the Wall Street Journal, data centers could account for about 11% of U.S. electricity demand by 2030, up from 4.5% today. McKinsey estimates that power consumption by data centers is expected to reach 35 gigawatts by 2030, up from 17 GW in 2022.

To learn about the Utilities Select Sector SPDR Fund XLU, Vanguard Utilities ETF VPU and Virtus Reaves Utilities ETF UTES, please watch the short video above.