• (1:00) - The Impact of AI On The Demand For Electricity
• (8:20) - Will Alternative Energy Play A Role In Supplying These Data Centers?
• (13:50) - Should You Be Adding Utility Stocks To Your Portfolio Right Now?
• (18:30) - Virtus Reaves Utilities ETF: UTES
• (27:40) - Episode Roundup: XLU & VPU
• [email protected]

In this episode of ETF Spotlight, I speak with Jay Rhame, CEO of Reaves Asset Management, about utility stocks that have become the new AI play. Jay is co-portfolio manager of the Reaves Utility Income Fund and the Virtus Reaves Utilities ETF UTES.

The AI boom has driven a surge in demand for data center capacity to handle AI workloads. Data centers are big energy consumers, and AI applications consume even more energy than traditional computing.

Tech giants Microsoft MSFT, Amazon AMZN, Alphabet GOOGL and Meta Platforms META have reported massive investments in artificial intelligence and cloud computing in their latest earnings reports.

Utilities generally do not get a lot of interest from investors, but the sector has surged more than 15% over the past three months as investors have realized that these companies will benefit from the massive growth in electricity demand driven by data centers.

According to McKinsey, power consumption by data centers is expected to reach 35 gigawatts by 2030, up from 17 GW in 2022. Power producers Vistra VST and Constellation CEG have surged more than 149% and 92%, respectively, year-to-date. Nextera NEE is up about 26%.

Last week, Nvidia NVDA reported a blockbuster quarter, signaling that the AI boom will continue, leaving some to wonder whether we have enough power for data centers. According to a WSJ article, while power is abundant in the U.S., it is not efficiently transmitted or distributed.

Many tech giants have pledged to use renewable energy to power their data centers, driven by sustainability goals, which has led to higher investor interest in alternative energy producers. Will clean energy play a big role in powering data centers going forward?

The sector was previously known mainly for its defensive nature and steady dividends. These companies suffered last year from rising rates and investors preference for high-growth areas.

The most popular ETFs in the space, the Utilities Select Sector SPDR XLU and Vanguard Utilities ETF VPU, track market cap-weighted indexes. They are up about 14% year-to-date, whereas the actively managed UTES has surged more than 24%.

Tune in to the podcast to learn more.

Make sure to be on the lookout for the next edition of the ETF Spotlight and remember to subscribe! If you have any comments or questions, please email [email protected].

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