XLU gained 30% in 2024, outpacing the S&P 500's 22% return. The boring utilities ETF that your grandfather owned for dividends is being reborn as critical AI infrastructure. Data centers could consume 8% of US power by 2030, up from 3% today. The safe haven became a growth play, and most investors missed the transformation.
Why Did Utilities Suddenly Outperform the Market?
For decades, utilities were the sector you bought for yield and forgot about. Steady dividends, predictable cash flows, zero excitement. When the Fed raised rates 11 times, utilities dropped 19% as investors fled to Treasury bonds paying 5%. Then AI arrived. Every ChatGPT query, every model training run, every autonomous vehicle simulation requires electricity. The demand catalyst changed everything.
How Much Power Does AI Actually Need?
Data center electricity demand could double by 2030 according to Morningstar research. US data centers consumed 3% of total power in 2024. By 2030, that could reach 8%. One hyperscaler campus can require as much electricity as a small city. The companies building AI infrastructure need reliable, always-on power at massive scale. Utilities own that infrastructure.
Which Utilities Are Positioned for AI Growth?
NextEra Energy and Constellation Energy comprise 21% of XLU's holdings. NextEra operates the largest renewable energy portfolio in North America. Constellation runs the largest nuclear fleet, providing the 24/7 baseload power that solar and wind cannot guarantee. Data centers need power that never stops. Nuclear delivers. The top holdings aren't random. They're the infrastructure backbone of the AI revolution.
Is the 30% Rally Just Getting Started?
The 2024 surge wasn't a dead cat bounce from oversold conditions. It was repricing for a structural demand shift. EY's 2025 utilities outlook highlights surging electricity demand and significant capital investment needs. Rate cuts help, but the bigger story is secular growth in power consumption. And here's the bonus: XLU still yields 2.3% annually. You get the AI growth story plus the dividend income your grandfather bought utilities for in the first place.
The future of utilities combines the best of both worlds: growth and income. AI data centers could consume 8% of total US power by 2030, driving capital appreciation, while the 2.3% dividend yield provides steady cash flow. The sector that looked obsolete is being reborn as critical infrastructure for the AI revolution. Investors who saw past the rate sensitivity narrative discovered a rare combination: growth potential plus income generation. Seeing sector evolution helps you shift capital toward the capabilities that unlock the next frontier of human potential.