If AI is going to be the growth engine of the US economy for the foreseeable future, it will require enormous amounts of energy to power the data centers supporting it. So the companies that produce and sell this energy are going to benefit alongside the companies developing and deploying AI.
Up until recently, utilities were considered a sleepy corner of the stock market that’s used for defensive positioning by investors because their high dividends generate reliable cash during downturns. The best year for the S&P 500 utilities index was at the start of the dot-com meltdown in 2000, when it posted a 52% return while the overall S&P 500 dropped 10%. Utilities also outperformed the market during the global financial crisis in 2007 and 2008, as well as in 2022, when the S&P 500 sank as the Federal Reserve started aggressively raising interest rates.
Investors don’t appear to be buying utilities right now because of their dividends either. The dividend yield on the sector has fallen to about 2.6%, lower than it was during the dot-com meltdown, according to data compiled by Bloomberg.
So are electric utility stocks no longer a safe haven for Granny’s money?