The surging electricity demand driven by artificial intelligence (AI) is transforming the US utilities sector, attracting significant investor attention. After experiencing less than 0.5% annual growth in electricity consumption over the past two decades, Goldman Sachs projects a 2.4% annual growth rate between this year and 2030, largely due to AI's power requirements. This has led to a "concerted reversal" in investor sentiment, with over $1.7 billion pouring into US utilities funds in May and June, marking their best performance in nearly two years. Another $1.1 billion is expected in July, primarily in the Utilities Select Sector SPDR (XLU) ETF.
Big Tech companies like Microsoft and Google are investing billions into data centers to power AI, which consumes significantly more electricity than traditional computing. For instance, an AI internet search uses about 2.9 watt-hours compared to 0.3 watt-hours for a standard Google search. This heightened demand is pushing utilities to overhaul their spending plans, with companies like Edison International increasing capital spending from $6 billion to $8 billion annually. The International Energy Agency estimates global data center power demand could exceed 1,000 terawatt-hours by 2026, doubling 2022 levels and equivalent to Germany's total power demand.
The renewed investor interest has propelled utility stocks, with the S&P 500 Utilities index up 10.4% this year, a stark contrast to its -7.1% in 2023. Companies like Vistra Corp, Constellation Energy, and NRG Energy are among the S&P 500's top performers, with Vistra jumping over 15% after a recent power market auction by PJM, the largest US grid operator, saw prices rise more than 800% year-over-year. Investors view utilities as a more affordable way to gain exposure to the AI boom compared to expensive tech stocks like Nvidia or Microsoft.
However, this rapid expansion faces challenges, including power-infrastructure bottlenecks, turbine shortages, slow grid expansion, and regulatory hurdles. The US grid is already under strain, with annual US power consumption hitting a record high of 4,195 terawatt-hours in 2025. Electricity prices have also risen by an average of 7% in the year to January. To address these issues, some data centers are planning to construct their own power plants, primarily gas-fired, with 46 facilities identified for this purpose, representing about 30% of planned US data center capacity. This boom is turning utilities into growth stocks, but consumers may ultimately bear the cost.
