Why Electric Utility Stocks Are A Smart Way To Bet On AI

Source Domain: www.forbes.com

Here are 6 key points from the article:

Utility stocks connected to data centers are soaring due to increased demand for AI: Shares of electric utilities linked to data centers have experienced significant gains; Entergy, Constellation Energy, and Talen Energy have seen substantial increases over the past three years, all related to data center contracts.
Reaves Utility ETF outperformed the averages during AI’s rise: Managed by Jay Rhame, the Virtus Reaves Utilities ETF has delivered an impressive 14.5% annual return since its inception in 2015, outperforming the Morningstar utilities category by three points.
Focus on utility companies benefitting from AI: Rhame successfully anticipated which power producers would benefit from the AI-driven electricity demand. Key contracts include Entergy’s new plant for Meta, Constellation’s deal with Microsoft, and Talen’s arrangement with Amazon.
Strategic portfolio management: The Reaves ETF focuses on growth, whereas the Reaves Utility Income Fund targets income, offering a balanced payout for retirees. The ETF is undiversified towards electricity vendors, leading to significant growth in assets over three years.
Political landscape greatly impacts utilities: Utilities are heavily subject to political pressure, especially in states with intense regulation and hostile environments. Companies in less politicized states stand to benefit more from new data center installations and associated economic benefits.
Preparedness for market volatility: The electric utility market is on a volatile rollercoaster ride, with risks from natural disasters, fuel costs, and political controversies. Investors should be mindful of these potential fluctuations.