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ETFs to Make the Most of the AI-Powered Utility Sector
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Utility is one of the hottest plays this year, driven by the artificial intelligence (AI) frenzy, and is outperforming the broad market index, just behind technology and telecom stocks (see: all the Utilities ETFs here).
AI is bolstering the demand for electricity, as data centers require tons of energy for computing and cooling power. As a result, rising data center demand could boost profits in the sector. Investors seeking to make the most of the next leg in the AI industrial revolution could consider utility ETFs. These include Utilities Select Sector SPDR (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) , iShares U.S. Utilities ETF (IDU - Free Report) , Fidelity MSCI Utilities Index ETF (FUTY - Free Report) and Invesco S&P 500 Equal Weight Utilities ETF (RSPU - Free Report) . These funds have a Zacks ETF Rank #3 (Hold).
A simple ChatGPT task uses 10 times the energy a normal Google search does. So, data centers with a capacity of 30 megawatts are boosting capacity to handle 300 megawatts of power. This has made the traditional defensive sector of the market most appealing. The Energy Information Administration says data centers are “one of the most energy-intensive building types, consuming 10 to 50 times the energy per floor space of a typical commercial office building.”
The International Energy Agency (IEA) forecasts that data centers’ total electricity consumption could reach more than 1,000 terawatt-hours (TWh) in 2026, or “roughly equivalent to the electricity consumption of Japan.” In the United States alone, Boston Consulting Group estimates AI-powered data centers to consume as much as 7.5% of the electric output by 2030, triple of what it was in 2022. An analyst at Wells Fargo recently reported that U.S. electricity demand is expected to grow by as much as 20% by 2030, and AI data centers alone are likely to add 323 TWh of electricity demand (one TWh powers 70,000 homes for a year).
Further, the increased adoption of electric vehicles will also boost electricity demand for companies within the utilities sector. Added to the strength is the volatility and uncertainty triggered by the timing of the Fed rate cuts and a slowing economy. Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil (read: Sector ETFs to Profit as Rate Cut Bets Rise).
With an AUM of $14.3 billion, Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers and gas utility industries. XLU follows the Utilities Select Sector Index, holding 31 stocks in its basket. Electric utilities take the top spot among sectors at 66%, closely followed by multi utilities (26%).
Utilities Select Sector SPDR charges 9 bps of annual fees and sees a heavy volume of 13.4 million shares, on average. XLU has rallied 12.6% so far this year (read: 5 ETFs to Buy for June).
Vanguard Utilities ETF follows the MSCI US Investable Market Utilities 25/50 Index, holding 65 securities in its basket, with none accounting for more than 12.4% share. More than half of the portfolio is allocated to electric utilities, closely followed by multi utilities (25.3%).
Vanguard Utilities ETF charges 10 bps in annual fees and sees a good volume of around 179,000 shares on average. It has AUM of $5.7 billion and is up 12.6% so far this year.
iShares U.S. Utilities ETF tracks the Russell 1000 Utilities RIC 22.5/45 Capped Index. It holds a basket of 46 securities with a slight tilt toward the top firm at 12.5%, while others make up for less than 7%. Here again, electric utilities dominate the portfolio at 57.3%, followed by multi utilities (22%).
iShares U.S. Utilities ETF has amassed $1.3 billion in its asset base while trading in a good volume of 90,000 shares a day on average. The fund charges 40 bps in annual fees and has gained 13.3% so far this year.
Fidelity MSCI Utilities Index ETF provides exposure to 70 utility stocks with AUM of $1.2 billion. This is done by tracking the MSCI USA IMI Utilities Index. Here too, electric utilities and multi utilities are the top two sectors with 62.4% and 24.1% share, respectively.
Invesco S&P 500 Equal Weight Utilities ETF offers exposure to 32 equal-weighted companies in the utilities and telecommunication services sectors of the S&P 500 Index and tracks the S&P 500 Equal Weight Utilities Plus Index. Electric utilities and multi-utilities account for 55.5% and 31.2% of the assets, respectively, while independent power and renewable electricity round off the next spot with 7.1% exposure.
Invesco S&P 500 Equal Weight Utilities ETF charges 40 bps in annual fees. It has AUM of $277.8 million and has gained 10% so far this year.
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ETFs to Make the Most of the AI-Powered Utility Sector
Utility is one of the hottest plays this year, driven by the artificial intelligence (AI) frenzy, and is outperforming the broad market index, just behind technology and telecom stocks (see: all the Utilities ETFs here).
AI is bolstering the demand for electricity, as data centers require tons of energy for computing and cooling power. As a result, rising data center demand could boost profits in the sector. Investors seeking to make the most of the next leg in the AI industrial revolution could consider utility ETFs. These include Utilities Select Sector SPDR (XLU - Free Report) , Vanguard Utilities ETF (VPU - Free Report) , iShares U.S. Utilities ETF (IDU - Free Report) , Fidelity MSCI Utilities Index ETF (FUTY - Free Report) and Invesco S&P 500 Equal Weight Utilities ETF (RSPU - Free Report) . These funds have a Zacks ETF Rank #3 (Hold).
A simple ChatGPT task uses 10 times the energy a normal Google search does. So, data centers with a capacity of 30 megawatts are boosting capacity to handle 300 megawatts of power. This has made the traditional defensive sector of the market most appealing. The Energy Information Administration says data centers are “one of the most energy-intensive building types, consuming 10 to 50 times the energy per floor space of a typical commercial office building.”
The International Energy Agency (IEA) forecasts that data centers’ total electricity consumption could reach more than 1,000 terawatt-hours (TWh) in 2026, or “roughly equivalent to the electricity consumption of Japan.” In the United States alone, Boston Consulting Group estimates AI-powered data centers to consume as much as 7.5% of the electric output by 2030, triple of what it was in 2022. An analyst at Wells Fargo recently reported that U.S. electricity demand is expected to grow by as much as 20% by 2030, and AI data centers alone are likely to add 323 TWh of electricity demand (one TWh powers 70,000 homes for a year).
Further, the increased adoption of electric vehicles will also boost electricity demand for companies within the utilities sector. Added to the strength is the volatility and uncertainty triggered by the timing of the Fed rate cuts and a slowing economy. Being a low-beta sector, utility is relatively protected from large swings (ups and downs) in the stock market and is thus considered a defensive investment or safe haven amid economic or political turmoil (read: Sector ETFs to Profit as Rate Cut Bets Rise).
ETFs to Tap
Utilities Select Sector SPDR (XLU - Free Report)
With an AUM of $14.3 billion, Utilities Select Sector SPDR seeks to provide exposure to companies from the electric utility, water utility, multi-utility, independent power and renewable electricity producers and gas utility industries. XLU follows the Utilities Select Sector Index, holding 31 stocks in its basket. Electric utilities take the top spot among sectors at 66%, closely followed by multi utilities (26%).
Utilities Select Sector SPDR charges 9 bps of annual fees and sees a heavy volume of 13.4 million shares, on average. XLU has rallied 12.6% so far this year (read: 5 ETFs to Buy for June).
Vanguard Utilities ETF (VPU - Free Report)
Vanguard Utilities ETF follows the MSCI US Investable Market Utilities 25/50 Index, holding 65 securities in its basket, with none accounting for more than 12.4% share. More than half of the portfolio is allocated to electric utilities, closely followed by multi utilities (25.3%).
Vanguard Utilities ETF charges 10 bps in annual fees and sees a good volume of around 179,000 shares on average. It has AUM of $5.7 billion and is up 12.6% so far this year.
iShares U.S. Utilities ETF (IDU - Free Report)
iShares U.S. Utilities ETF tracks the Russell 1000 Utilities RIC 22.5/45 Capped Index. It holds a basket of 46 securities with a slight tilt toward the top firm at 12.5%, while others make up for less than 7%. Here again, electric utilities dominate the portfolio at 57.3%, followed by multi utilities (22%).
iShares U.S. Utilities ETF has amassed $1.3 billion in its asset base while trading in a good volume of 90,000 shares a day on average. The fund charges 40 bps in annual fees and has gained 13.3% so far this year.
Fidelity MSCI Utilities Index ETF (FUTY - Free Report)
Fidelity MSCI Utilities Index ETF provides exposure to 70 utility stocks with AUM of $1.2 billion. This is done by tracking the MSCI USA IMI Utilities Index. Here too, electric utilities and multi utilities are the top two sectors with 62.4% and 24.1% share, respectively.
Fidelity MSCI Utilities Index ETF has an expense ratio of 0.08%, while the average daily volume is good at 149,000 shares a day. It has gained 12.6% so far this year (read: Leverage the Power of Utilities & Small-Caps With These ETFs).
Invesco S&P 500 Equal Weight Utilities ETF (RSPU - Free Report)
Invesco S&P 500 Equal Weight Utilities ETF offers exposure to 32 equal-weighted companies in the utilities and telecommunication services sectors of the S&P 500 Index and tracks the S&P 500 Equal Weight Utilities Plus Index. Electric utilities and multi-utilities account for 55.5% and 31.2% of the assets, respectively, while independent power and renewable electricity round off the next spot with 7.1% exposure.
Invesco S&P 500 Equal Weight Utilities ETF charges 40 bps in annual fees. It has AUM of $277.8 million and has gained 10% so far this year.