The Rise of Utility Stocks: How AI is Driving Demand for Power
While there are concerns about the sustainability of the gains, the growing demand for power from tech companies is undeniable.
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The growing demand for artificial intelligence (AI) is having an unexpected impact on the utilities sector. As tech companies like Microsoft and Amazon invest heavily in AI infrastructure, they require massive amounts of power to fuel their data centers. This has led to a surge in demand for electricity, making utility stocks a hot commodity on Wall Street.
Shares in independent power producers like Vistra Corp. and Constellation Energy Corp. have seen significant gains in recent months, with Vistra’s stock rising over 230% this year. This is largely due to the growing demand for power from tech companies, as well as deals like Constellation’s agreement to supply nuclear power to Microsoft.
However, some analysts are cautioning that the gains may be fragile, as the sector is sensitive to interest rates. A slowdown in money flowing into utilities funds has also raised concerns that the returns from rate-cut plays may have already been made.
Despite this, many experts remain optimistic about the future of utility stocks. Nicholas Colas, co-founder of DataTrek, believes that utilities will continue to outperform once bond yields start heading lower again. The AI theme is also expected to continue driving demand for power, with data centers replacing older chips with AI-focused GPUs.
The S&P 500 Utilities Index has delivered annualized total returns of 6.1% over the past five years, with about half of that coming from dividends. While this may not be as impressive as the broader S&P 500, the AI gold rush is turning the sector on its head.
As Dan Thompson, a principal analyst at S&P Global, explains, data centers require massive quantities of electricity to train their systems, and this demand is only expected to grow. This has led to a surge in investment in digital infrastructure, with companies like Meta announcing plans for nearly $40 billion in investment.
As AI continues to shape the tech landscape, utility stocks are likely to remain a key player.
Source: The Spokesman-Review
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