Artificial intelligence has become so omnipresent that sectors not normally associated with the AI movement are nevertheless starting to benefit from it. While technology and communication services typically reap the AI gains among S&P 500 companies, utility stocks have been rallying, thanks to the side effects of the rapidly spreading technology.
Utilities and AI may appear to be polar opposites at first glance. While utilities normally play the role of defensive stocks as well as proxies for income plays like bonds, artificial intelligence has been the latest driver of hyper growth for a lot of other sectors.
But growing demand for training large language models and for data centers that power AI applications is requiring more energy — a lot more.
The International Energy Agency says AI is powering a spike in energy demand. Even a simple ChatGPT task uses 10 times the energy a normal Google search does. So now data centers with a capacity of 30 megawatts are boosting capacity to handle 300 megawatts of power.
Artificial Intelligence: A Higher Growth Multiple For Utilities?
That has turned utilities from laggards to winners, analysts say. Adam Turnquist, Chief Technical Strategist at LPL Financial, observes that their relative strength is picking up, which is highly unusual for the group.
"Data center demand could also deliver higher growth rates and momentum to the sector," Turnquist said in a note. "This could potentially open the door to new investors and justify a higher multiple."
Among the S&P sectors, utilities have been the best performing, with a 14% gain year to date.
Among Investor's Business Daily's industry groups, the Utility-Electric Power bracket has gained nearly 13%, thanks in part to the artificial intelligence boom, while the S&P 500 is higher by about 11%.
By comparison, gas utilities are up about 5%; water utilities are down about 2%.
Individual stocks to watch in the sector include Edison International, which hovers just above a buy point of 74.92.
Portland General Electric sits just above an alternate buy point of 44.77. CMS Energy is in buy range from a 60.87 buy point.
Detroit-based DTE Energy is in buy range from a 114.62 entry.
| Stock | EPS Rating | Composite Rating |
|---|---|---|
| AES | 95 | 87 |
| POR | 87 | 81 |
| SO | 92 | 89 |
| EIX | 72 | 82 |
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