Al is transforming power companies

Utilities sector, up 44% in S&P 500 since end of 2023, is one of top three performers.

- CARMEN REINICKE

UTILITY stocks' rally is tied to AI data centers' massive energy needs. Above, a data center in Vernon.

The artificial intelligence trade that has driven the Standard & Poor's 500 index to one record after another over the last few years is transforming traditionally sleepy utilities stocks into booming growth plays.

Since the end of 2023, the utilities sector has been up 44%, making it the third-best-performing group in the S&P 500, behind only communications _ services and information technology.

Those three also lead this year, with utilities gaining 21%. Before this run, the S&P 500 Utilities index, which has hit numerous all-time highs in the last few months alone, had never posted 20% gains in back-to-back years, according to data compiled by Bloomberg that starts in 1990.

The logic behind this rally is simple. If AI is going to be the growth engine of the U.S. economy for the foreseeable future, it will require enormous amounts of energy to power the data centers supportingit. So the companies that produce and sell this energy are going to benefit alongside the companies developing and deploying AI.

“We are exposed to the utilities that are independent power producers for the precise reason that they seem like maybe a better way to play AI,” said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co., which has $25 billion in assets under management.