Tech giants Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), and Meta (META) reported their quarterly results last week. The key takeaway: the AI boom shows no signs of slowing down.
The AI boom has driven a surge in demand for data center capacity to handle AI workloads and store the vast amounts of data they require.
Google, Amazon, Meta, and Microsoft together are projected to spend more than $350 billion on data centers this year, and more than $500 billion in 2026.
Data centers are massive energy consumers, and AI applications require even more power than traditional computing.
According to S&P Global, the rapid expansion of data centers in the U.S. will require 22% more grid power by the end of 2025 than a year earlier and nearly three times as much by 2030.
The Wall Street Journal reports that data centers consumed less than 2% of U.S. electricity before 2020, but by 2028 they could use as much as 12%.
Power producers Vistra (VST), Constellation Energy (CEG), and NRG Energy (NRG) have surged as they stand to benefit from the massive growth in electricity demand driven by data centers.
Utilities is currently the third best-performing sector this year, up almost 18%, behind only Technology and Communication Services. The sector gained more than 19% in 2024.
Traditionally, utilities were known for their defensive nature and steady dividends. Historically, they’ve outperformed the broader market during economic slowdowns, as electricity remains essential even in challenging environments.
The sector beat the broader indexes during the dot-com bubble burst in 2000, the global financial crisis in 2007–2008, and again in 2022, when major indexes performed poorly.
The sector could also benefit from lower interest rates, increased M&A activity, and potential investment from private equity and infrastructure funds.
To learn more about the Utilities Select Sector SPDR Fund (XLU), Vanguard Utilities ETF (VPU), and Virtus Reaves Utilities ETF (UTES), please watch the short video above.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
