Want to cash in on the AI boom? AI plays like Super Micro Computer and Nvidia are so obvious. How about another S&P 500 stock, Vistra?
Vistra has seen it shares rocket more than 152% this year thanks to the AI boom. That's even better than Nvidia's 92% rise this year. But Vistra doesn't make AI models or even semiconductors. It's an Irving, Texas-based electric and power generation utility.
What do utilities like Vista have to do with AI? Building out AI models is so power-intensive, electricity is literally the fuel of AI. And investors are increasingly looking at utilities not as sleepy sources of dividends for widows and orphans, but a new way to play the AI boom.
"The growth trajectory of a utility company is not comparable to these poster children of AI, investors are starting to kick the tires on the sector as a potential derivative play to the AI boom," said Adam Turnquist, strategist at LPL Financial.
Electric Utilities At AI Epicenter
Talk about an unsuspecting S&P 500 sector winner from AI mania. The Utilities Select Sector SPDR Fund is up 14.4% this year so far. That makes it the top-performer among the 11 S&P 500 sectors. It's topping even the Technology Select Sector SPDR Fund, which is up 10.6% this year. Three of the top 10 S&P 500 stocks this year are utilities: Vistra, Constellation Energy and NRG Energy.
Demand for AI power needs is already picking up. On May 2, Dominion Energy CEO Bob Blue noted big jumps in demand from data center customers, many of which power AI work. "Historically, a single data center typically had a demand of 30 megawatts or greater," he said. "However, we're now receiving individual requests for demand of 60 to 90 megawatts or greater and it hasn't stopped there. We get regular requests to support larger data center campuses that include multiple buildings and require total capacity ranging from 300 megawatts to as many as several gigawatts."
Already, Alphabet, Amazon, Meta Platforms and Microsoft used 90 terawatt-hours of electricity in 2022, as much as the nation of Columbia, JPMorgan Chase told The Economist. Data centers will likely use up 800 terawatt-hours of power globally in 2026, The Economist said, citing data from International Energy Agency.
Profiting On S&P 500 Utilities With ETFs
ETFs are a good option for investors looking to profit on this surprising AI stock boom. But again, not in the obvious way.
"Utilities are likely to benefit from higher electricity costs of businesses tied to artificial intelligence," said Todd Rosenbluth of Vetta Fi. "But unlike semiconductors they pay dividends and have consistent earnings records. Utilities are a more defensive sector that holds up well during times of market volatility."
And the classic AI ETFs aren't going to get you in on the utility play. The largest pure-play AI ETF, Global X Robotics and Artificial Intelligence, doesn't own the top-performing utility stocks.
One way to play the utilities AI boom with ETFs is with the Utilities Select Sector SPDR Fund, Rosenbluth says. The ETF, though, is market-cap weighted. That means 14% of assets are in NextEra Energy. Meanwhile, Southern and Duke Energy are next largest at 7% positions each. None of these stocks are up as much as Vistra this year. NextEra is up nearly 27%, though.
For investors who want more diversification, Invesco S&P 500 Equal Weight Utilities ETF owns all utility stocks equally. "All 32 stocks are of roughly equal proportion with just under 4% in NextEra energy and NRG Energy," he said.
Three Of The Year's Top S&P 500 Stocks Are Utilities
| Company | Ticker | Year-to-date % ch. | Sector | Yield |
|---|---|---|---|---|
| Super Micro Computer | 234.7% | Information Technology | 0% | |
| Vistra | 152.3 | Utilities | 0.9 | |
| Nvidia | 91.5 | Information Technology | 0.01 | |
| Constellation Energy | 91.4 | Utilities | 0.6 | |
| NRG Energy | 63.6 | Utilities | 1.9 | |
| Howmet Aerospace | 52.4 | Industrials | 0.2 | |
| Micron Technology | 49.7 | Information Technology | 0.3 | |
| Western Digital | 44.1 | Information Technology | 0 | |
| Eaton Corporation | 40.0 | Industrials | 1.1 | |
| Chipotle Mexican Grill | 38.6 | Consumer Discretionary | 0 |
