Rising AI demand increase investment in U.S. utility stocks
(MENAFN) U.S. investors are increasingly turning to utility stocks as the surge in energy-hungry artificial intelligence (AI) applications drives up electricity demand, altering the previously stagnant growth outlook for the sector. Data from Morningstar Direct revealed that over USD1.7 billion flowed into U.S. utility funds, which are valued at around USD41 billion, during May and June, marking their strongest performance in nearly two years. According to State Street, an additional USD1.1 billion is anticipated to have been invested in these funds in July, with most of this capital directed towards the Utilities Select Sector SPDR exchange-traded fund.
This influx of capital into utility stocks during a robust bull market is noteworthy, as utilities typically serve as a safe haven during economic volatility. Investors are finding utility stocks to be a more affordable way to gain exposure to the AI boom compared to pricier tech stocks like Nvidia, Microsoft, and Google, which have already experienced significant gains. Jay Jacobs, BlackRock's head of U.S. active ETFs, expects utilities to remain attractive to investors seeking AI opportunities beyond the major tech companies throughout the year. Jacobs noted that investors are looking beyond the top tech stocks and are eager to find the next lucrative opportunity.
The increased interest in utilities is driven by tech giants such as Microsoft and Google investing billions into data centers to support AI, which adds to the existing demand from electric vehicles and manufacturing relocations. AI technologies require significantly more power generation capacity than traditional computing technologies. For instance, AI-driven internet searches, like those conducted using ChatGPT, consume approximately 2.9 watt-hours of electricity, compared to 0.3 watt-hours for a regular Google search, according to the International Energy Agency. This rising demand for electricity is creating new growth prospects for the utility sector, attracting investors looking to capitalize on the expanding influence of AI on power consumption.
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