Riding on the concept of AI computing power, the US utility sector has risen to become a "growth stock".

In the past few years, the development in the field of artificial intelligence has led to the S&P 500 index repeatedly reaching new highs. This trend is transforming previously mundane utility stocks into highly promising investment targets. Notably, since the end of 2023, the utility sector has risen by 44%, becoming the third best-performing sector in the S&P 500 index, following only the communication services sector and the information technology sector. These three sectors have also performed exceptionally well this year, with the utility sector rising by 21%. According to data since 1990, prior to this, the S&P 500 utility index had set multiple historical highs in the past few months, but had never achieved a 20% increase for two consecutive years. The logic behind this rebound is simple. If artificial intelligence is expected to become the growth engine of the U.S. economy in the coming years, the data centers set up to support its operation will require a large amount of energy. Therefore, utility companies that produce and sell this energy will benefit alongside companies developing and applying artificial intelligence. Brad Conger, Deputy Chief Investment Officer at Hirtle Callaghan & Co., managing assets of $25 billion, said, "We have chosen these independent power producers as investment targets because they seem to offer a better way to implement applications of artificial intelligence." Perhaps unsurprisingly, this year, the best-performing stocks in the utility index were independent power producers. NRG Energy (NRG.US) saw its stock price rise by 85% in 2025, ranking it among the top ten of the S&P 500 index, trailing only chip manufacturers Intel Corporation (NVDA.US) and AMD (AMD.US). Meanwhile, the stock price of Constellation Energy (CEG.US) increased by 65%, and Vistra (VST.US) saw a 41% rise. Until recently, utility stocks had been viewed as a quiet sector in the stock market, with investors choosing them as defensive investments due to their high dividend yields providing stable cash flow during economic downturns. The best performing year for the utility sector in the S&P 500 index was at the beginning of the 2000 internet bubble burst, when the index rose by 52%, while the entire S&P 500 index fell by 10%. During the global financial crisis of 2007 and 2008, as well as in 2022 when the Fed started raising interest rates significantly leading to a decline in the S&P 500 index, the utility sector also outperformed the broader market. However, what makes this rebound notable is that it is occurring during a three-year bull market, while other typically defensive sectors have not performed well, with consumer staples and healthcare sectors seeing gains of less than 6%. The real estate sector (similar to utilities, which typically pay high dividends) saw an increase of only 4.4%. Currently, investors do not seem keen on utility stocks, one reason being their dividend yields. The dividend yield of the sector has dropped to about 2.6%, below the levels seen during the internet bubble burst. The decline in yield is due to the rapid rise in stock prices, making it expensive for investors to buy these stocks. Kevin Gordon, Head of Macro Research and Strategy at Jiaxing Wealth Management, said, "It is caught in a whirlwind of momentum trading and is gradually becoming part of high beta trading. The momentum effect does not vary greatly across different industries." These returns have made utility stocks riskier than ever and more dependent on economic conditions. If investments in artificial intelligence slow down or, worse, are temporarily cut, these stocks, like other assets related to this boom, will need to be revalued. Conger pointed out, "If the argument for artificial intelligence is questioned, they will be penalized." He noted that the industry's trading volatility has decreased, diminishing its attractiveness as a tool to hedge against significant market fluctuations. Conger said, "We have also constructed low-volatility investment portfolios, which typically include a large number of utility stocks including healthcare, consumer staples, utilities, and a small amount of real estate investment trust stocks. However, looking to the future, we will significantly reduce the allocation of utility stocks, as we understand that these stocks are increasingly linked to the cyclical nature of the artificial intelligence field." Whether this shift to cyclical patterns represents a long-term change for utility companies or merely a temporary fluctuation brought on by artificial intelligence remains to be seen. Meanwhile, the performance of these companies is akin to that of technology growth stocks. Therefore, investors seeking secure investments will have to look elsewhere. Louis Navellier, Chief Investment Officer at Navellier & Associates, said, "The outlook for the utility industry is very optimistic, as demand is clearly growing, and their rate increases have been approved by public utility commissions. I believe the utility industry will be a steady growth sector. Currently, utility stocks are undoubtedly the most defensive sector."