3 Utility Stocks To Play As The Sector Powers Up

Too many investors give short shrift to utility stocks, deeming the sector to be drab and dour, with the main draw a nice dividend return.

Not anymore, as burgeoning technology demands are providing a powerful jolt to the utility realm. 

A case in point: So far in 2025, the utilities sector has quietly outpaced much of Big Tech, riding a wave of investor enthusiasm tied to the energy needs of artificial intelligence. The Utilities Select Sector SPDR Fund (NYSE:XLU) is up 23.4% year-to-date, well ahead of the S&P 500 and even closing the gap on technology benchmarks that had long outshone the sector.

Historical rate-sensitive factors, such as lower interest rates or defensive portfolio positioning, are not fueling this run-up. Instead, utilities are rising to meet increasing demand driven by AI, data centers and quantum computing, giving the sector a shot of adrenaline it didn’t see coming 10 years ago.

The Short-Term Trading Strategy Built For Market Crossroads

Every rally fades. Every dip rebounds. The market’s searching for direction, and that’s creating opportunities for traders who know how to read volatility. Join Chris Capre on Tuesday, November 12 at 6 PM ET to see how his Trading Waves system uses defined-risk spreads and institutional flow signals to trade short-term setups before the next big move hits. Join the Free Session

“The incredible run-up in these stocks is 100% tied to AI. The future will include significant use of nuclear power, including both large-scale and small modular reactors (SMRs),” said Paul T. Murray, president of PTM Wealth Management in North Wales, Pa. “I live near Three Mile Island, which Microsoft is reactivating to generate electricity for AI. The hype, or real need, is driving expectations that revenues will increase significantly for power producers.”

AI Demand Is Surging

Utility’s rise reflects a fundamental shift in what powers the digital economy. As artificial intelligence becomes embedded across industries, the demand for energy to train and operate algorithms is exploding.

For instance, U.S. data centers will require 22% more grid power by the end of 2025 than in 2024,  and three times as much in 2030, according to 451 Research, part of S&P Global.

“Utilities and recent AI demand are absolutely connected,” said Jordan Kirkbride, a U.K.-based wealth manager who advises high-net-worth clients. “AI is the code, but the data centers housing those systems are using so much energy to provide it to users. Companies are partnering with tech giants to locate power sources closer to data centers for low latency and better efficiency.”

Utilities are increasingly plugged into hyperscaler infrastructure, transforming the power sector. It’s the “picks and shovels of the AI gold rush,” with electricity suppliers powering the next wave of computing,” Kirkbride added.

From Defense To Dynamite

The shift in technology infrastructure to utilities is nothing new. Utilities have been cleaning up their balance sheets and streamlining operations for over a decade.

“After decades of neglect on basic utility infrastructure, management teams have refocused their businesses,” said Andy Smith, portfolio manager for the Allspring Global Investments Utility and Telecommunication Fund. “They’ve simplified, shedding more volatile non-utility segments, concentrating on maintaining and expanding the grid. Add the explosion in data-center growth, and utilities are now forecasting electricity demand unseen in decades.”

That backdrop of modernization coincides with a surge in electricity usage, not only from AI but also from electric vehicles and a wave of manufacturing reshoring. Simultaneously, utilities remain relatively cheap. As Smith points out, despite more robust sector fundamentals, many utilities still trade at 15% to 20% discounts to the overall market, giving investors a good reason to start kicking some tires on power stocks.

Three Sector Stocks Worth Playing Right Now

With optimism rising in utilities, which sector stocks are worth buying right now? These names lead the list.

Entergy Corporation (NYSE:ETR)

Trading at $97 per share and up 26.2% year to date, this New Orleans-based electric and natural gas services company is set to plow $41 billion into its operations through 2029. It has 10,000 megawatts of clean energy either up and running or at the expected approval stage. The company’s financial future looks bright, with long-term earnings growth of 10.2%.

“ETR has done an excellent job of working with stakeholders in its service territory to attract and enter into contracts with data center customers,” Smith said. “The company has increased its projected growth rate several times as a result.”

Constellation Energy Corporation (NASDAQ:CEG)

Murray likens Constellation Energy, one of the largest electricity generators in the country, to a more growth-oriented portfolio play right now. “Throughout this year, the volatility in this stock has been very un-utility-like, as if it were a tech company, owing to AI enthusiasm,” he said.

Trading at $331 per share and up 57% year-to-date, CEG has signed several data center contracts at above market prices. “It also has plenty of power generation, much of it clean nuclear power, available for future deals,” Smith noted.

Nextera Energy (NYSE:NEE)

Up 14.3% year to date and trading at $81 per share, Juno Beach, Fla.-based Nextera ranks highly on the list of U.S. renewable energy leaders.

“NEE is aligned with hyperscalers and their goals,” Kirkbride said. “They have solar and wind farms to produce energy, and this has driven promising growth alongside a 3%-plus dividend.” That’s above twice as much as the S&P 500’s 1.2% dividend yield.

The company’s third-quarter financials were stellar, with adjusted earnings per share up 9.7% year over year. For a utility company, that EPS rate is highly impressive in an industry where earnings usually range from 3% to 5%.  

Editorial content from our expert contributors is intended to be information for the general public and not individualized investment advice. Editors/contributors are presenting their individual opinions and strategies, which are neither expressly nor impliedly approved or endorsed by Benzinga.

Photo: Shutterstock