ETFs
How Utility Stocks and ETFs Became AI’s Hot Game
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(1:00) – The impact of AI on electricity demand
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(8h20) – Will alternative energies play a role in supplying these data centers?
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(1:50 p.m.) – Should you add utility stocks to your portfolio now?
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(6:30 p.m.) – Virtus Reaves Utilities ETF: UTES
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(27:40) – Episode summary: XLU and VPU
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Podcast@Zacks.com
In this episode of ETF Spotlight, I talk with Jay Rhame, CEO of Reaves Asset Management, about the utility stocks that have become the new AI game. Jay is co-portfolio manager of the Reaves Utility Income Fund and the Virtus Reaves Utilities ETF UTES.
The AI boom has led to an increase in demand for data center capacity to handle AI workloads. Data centers are big energy consumers, and AI applications consume even more energy than traditional computing.
Tech giants Microsoft MSFT, Amazon AMZN, Alphabet GOOGL and Meta Platforms META announced massive investments in artificial intelligence and cloud computing in their latest earnings reports.
Utilities don’t typically attract much interest from investors, but the sector has surged more than 15% in the past three months as investors realized these companies would benefit from the massive growth in demand for electricity driven by data centers.
According to McKinsey, data center power consumption is expected to reach 35 gigawatts by 2030, up from 17 GW in 2022. Power producers Vistra VST and Constellation CEG have grown more than 149% and 92%, respectively, since the start of the year. Nextera NEE is up about 26%.
Last week, Nvidia NVDA reported a record quarter, signaling that the AI boom will continue, leaving some wondering if we have enough data center power. According to a WSJ article, although electricity is abundant in the United States, it is neither transmitted nor distributed efficiently.
Many tech giants have committed to using renewable energy to power their data centers, driven by sustainability goals, leading to increased investor interest in alternative energy producers. Will clean energy play an important role in powering data centers in the future?
The sector was previously known primarily for its defensive nature and stable dividends. These companies suffered last year from rising rates and investors’ preference for high-growth areas.
The most popular ETFs in the space, Utilities Select Sector SPDR XLU and Vanguard Utilities ETF VPU, track market-cap-weighted indices. They are up around 14% year to date, while actively managed UTES has surged more than 24%.
Tune in to the podcast to learn more.
Be on the lookout for the next edition of ETF Spotlight and don’t forget to subscribe! If you have any comments or questions, please email podcast@zacks.com.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
NextEra Energy, Inc. (NEE): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Constellation Energy Corporation (CEG): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
SPDR Select Utility Sector ETF (XLU): ETF Research Reports
Vanguard Utilities ETF (VPU): ETF Research Reports
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Virtus Reaves Utilities ETF (UTES): ETF Research Reports
Vistra Corp. (VST): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report