Utilities are enjoying an AI tailwind. Can the sector shake off its dull reputation?

There are many good reasons to invest in utilities. They are recession-proof. The dividends are attractive. They are regulated and dependable., which relies on vast quantities of electricity required by data centres, now emerging as the chief reason to invest in the sector?

Sure, we can insert all sorts of asterisks here. Tech stocks have easily outperformed utilities over other periods, such as the past year. For all the new-found attention, U.S. utilities are still nearly 10 per cent below their highs in 2022. Asterisks aside, though, it’s hard to ignore the influence of AI, an investing theme that has been dominating the stock market for about a year and pushing investors to consider other potential winners beyond the likes of chip maker Nvidia Corp.“Data centers are and will continue to be a significant source of demand,” said Suparna Ray, an energy analyst at the U.S. Energy Information Administration , in an e-mail.

But Rystad expects this share will rise at a compound annual growth rate of 13 per cent through 2030, which will require significant investments in the U.S. electricity grid. For starters, not all utilities stocks are likely to meet lofty expectations. While the U.S. sector, as a whole, has been strong over the past few months, there is a disparity among individual names within the sector., which has nuclear and solar power among its assets, along with battery storage capabilities, is one of the clear winners. Its share price has rallied 91 per cent over the past three months, partly on upbeat expectations for data centres.

But investors who prefer their utilities dull and predictable should also consider this: Although electricity consumption is up 14-fold over the past seven decades, according to the EIA, it has essentially flatlined since 2007, thanks to big gains in efficiency standards.

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