Utility ETFs, American Superconductor Look To Benefit From Trump’s Orders

In his first week in office, President Donald Trump signed a slew of executive orders addressing a variety of growing industries including artificial intelligence (AI), digital financial technology (fintech), and energy production.

Trump declared a national energy emergency and said the nation’s energy infrastructure needs to expedite energy and infrastructure projects. He removed regulations that have limited the generation of reliable and affordable energy and barriers hindering the growth of AI. One order seeks to strengthen America’s leadership in digital financial technology by promoting blockchain, digital assets and emerging financial technologies, such as cryptocurrency.

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Altogether, these industries are significantly boosting the demand for datacenters where computing power is centralized and easily accessible. These large physical facilities house computer servers, storage systems, networking equipment, and other infrastructure designed to store, manage, and distribute data.

Last week, Mark Zuckerberg, the chief executive of Meta Platforms (META), announced Meta will increase its capital spending this year by up to $65 billion to cover the costs of AI and a massive new data center in Louisiana “so large it would cover a significant part of Manhattan” and bring one gigawatt of computing power online.

The boost in datacenters is driving demand higher for electricity, up from an already strained national electrical grid system having difficulty keeping up with current demand. Last month, the Department of Energy estimated that data center load growth is projected to “double or triple” by 2028.

According to a recent white paper from the Electric Power Research Institute (EPRI), by 2030, electricity usage by hyperscalers is expected to consume up to 9% of U.S. electricity generation, up from 4% today. Last year, PG&E (Pacific Gas and Electric Company), one of the largest natural gas and electric utilities in the U.S., said it expects demand for electricity to grow by 70% over the next two decades.

While this may change due to the introduction of a new AI from Chinese start-up DeepSeek, as of today this is unknown. Meanwhile, the way to profit off this growth is to buy an ETF that holds a portfolio of utility stocks. Last year, these funds saw returns close to the 24.9% seen in the S&P 500 Index.

· The Utilities Select Sector SPDR ETF (XLU) holds all the utility stocks in the S&P 500. According to Morningstar, it jumped 23.3% in 2024 and was up 5% year to date before yesterday’s stock-market rout brought it down to 2.6%, which may present a buying opportunity.

· The iShares U.S. Utilities ETF (IDU) climbed 23.2% in 2024 and 4.8% year to date as of Friday (all numbers from Morningstar).

· The Vanguard Utilities ETF (VPU) gained 23.1% in 2024 and 4.8% as of Jan. 25.

· Virtus Reaves Utilities ETF (UTES), an actively managed fund soared 45.3% last year and 14% as of Jan. 25.

· Global X US Infrastructure Development ETF (PAVE) invests in companies to benefit from a potential increase in infrastructure activity in the USA. It rose 17.9% last year and 8.1% as of Jan. 25.

The growth potential for sizeable infrastructure buildouts in the utilities sector is large. Yet, in the meantime, utilities are forced to push the existing grid to its limit to meet today’s demands.

One company that helps utilities boost their power between the grid and the end user is American Superconductor (AMSC). The Ayer, Mass. company makes it easier for other companies to connect reliable energy so the grid can accept it by ensuring the right voltage, the right frequency, power quality, power conditions, and power connection.

“We help the grid do things it’s not ready to do and more of what it already does,“ Daniel P. McGahn, chairman, president and chief executive of AMSC, told Forbes.com in an interview. The end users must be able to power their facilities in ways that add scale without adding complexity or size. McGahn said, AMSC’s products are uniquely positioned to address this market demand. This demand also comes from charging electric vehicles and the building of fabrication plants funded by the CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act of 2022. “We make it more secure, much more resilient, and look for problems.”

McGahan estimated that 50% of the company’s financial growth will come from industrials and chips, 30% from renewables, specifically wind turbines, and the remaining 20% from the military.

AMSC’s products include:

· Electrical Control System for wind turbines which maximizes the turbines’ power generation

· Transmission Voltage Management for connecting renewable energy to the grid

· Resilient Electric Grid Systems which increase the reliability of urban grids

· Distribution Voltage Optimization to control voltage and allow utilities to distribute generated energy.

· Power Electronics and Control Systems, which mitigates power quality issues and corrects harmonic distortion.

· Power Supply which provides primary power to industrial equipment and ships

· Ship Protection Systems, a magnetic system that interferes with an underwater mines ability to detect and damage a ship.

“We condition the equipment to bring together disparate sources and disparate loads.” Said McGahn. “ We condition the power to be useful for the equipment at the site.”

In 2024, AMSC’s stock soared 125% on strong organic revenue growth, and the purchase of NWL, which provides power supplies to industrial and military customers. The stock closed the year at $25.02, down from a 52-week high of $36.81. Monday’s AI rout sent the stock tumbling 10% to $26.03.

For the second fiscal quarter ended Sept. 30, AMSC reported revenue grew 60% year over year to $54.5 million. AMSC also posted its first profit, $4.9 million, or $0.13 a share, compared to a net loss of $2.5 million, or $0.09 a share, for the same period in 2023.

AMSC plans to report results for the December 2024 quarter in the first half of February. The company expects revenues will be between $55.0 million to $60.0 million. It forecasts a net loss for the fiscal third quarter to not exceed $1.0 million, or $0.03 a share.