From Boring to Booming—Utilities Are The New Winners Of The AI Gold Rush
News Summary
In 2025, the utilities sector has seen a strong performance, returning over 15% year-to-date and outpacing the S&P 500, upending its traditional image as a “sleepy” defensive asset. This growth stems not only from its defensive appeal during market volatility but, more profoundly, from the unprecedented power demands of Artificial Intelligence (AI). Running large AI models requires substantial electricity; for instance, training GPT-4 can demand approximately 30 megawatts of continuous load. The International Energy Agency projects data center electricity use to more than double by 2030. Utilities are perfectly positioned to meet hyperscalers’ needs for reliable, 24/7, low-carbon energy (nuclear and natural gas), forming long-term partnerships with companies like Meta and Amazon. The article suggests that utilities are no longer just defensive plays but are “hidden” growth stocks. For investors, the article recommends two approaches: ETFs like XLU and VPU for broad sector exposure, and specific individual stocks. Key individual opportunities highlighted include Entergy (NYSE: ETR), DTE Energy (NYSE: DTE), and Constellation Energy (NASDAQ: CEG). Entergy is noted for its low-cost electricity and nuclear assets in the Southeast, partnering with Meta; DTE Energy for its robust nuclear plant and long dividend history; and Constellation Energy, the largest nuclear operator, for its strong pricing power in deals with Meta and Amazon, despite a rich valuation.
Background
Traditionally, the utilities sector has been viewed as a "sleepy" corner of the stock market, known for steady, predictable dividend payments and often favored by investors late in a bull market for portfolio preservation. This classification was not attractive during one of history's strongest bull markets, which saw numerous tech-driven growth stocks dominate. However, the rapid advancement of AI technology in 2025 and its immense computational demands are fundamentally altering this perception. The proliferation of AI data centers creates unprecedented requirements for power supply, demanding reliable, 24/7 operation, and increasingly, low-carbon energy. This positions utilities not merely as defensive assets but as critical components of AI infrastructure, serving as a core enabler for a high-growth industry.
In-Depth AI Insights
What are the deeper strategic motives for hyperscalers to partner directly with utilities, beyond mere power supply? - To secure long-term, stable, and cost-predictable power supply for their massive and expanding AI infrastructure. - To gain greater control over energy costs, which represent a significant operational expense for data centers. - To meet corporate Environmental, Social, and Governance (ESG) goals by leveraging low-carbon energy sources (e.g., nuclear and renewables facilitated by utilities). - To reduce reliance on volatile grid pricing and potential energy market disruptions, thereby enhancing operational resilience. How might this 'AI gold rush' impact the regulatory landscape for utilities and the broader energy market? - Regulators will face increased pressure to approve new generation capacity and grid upgrades rapidly to meet surging AI demand. - There could be expedited permitting processes for nuclear and natural gas projects, particularly those supporting AI data centers. - Regulatory focus may shift from purely consumer protection to balancing consumer and industrial (AI) demand. - Utilities face the risk of public backlash if increased demand leads to higher electricity prices for residential consumers. What are the less obvious risks for utilities despite the apparent tailwinds from AI? - Significant capital expenditure requirements for new generation and transmission infrastructure, potentially leading to increased debt and financing costs. - Regulatory hurdles and delays in project approvals, particularly for nuclear expansion, could impede growth plans. - Advanced AI technology could lead to future energy efficiency gains or cooling breakthroughs, impacting long-term power demand forecasts. - Political and public pressure could lead to more stringent low-carbon energy mandates, forcing utilities into costly transitions even if current assets remain economically viable.