Utilities Surge as Growth Stocks Amid Rising AI Demand

The utility sector is experiencing a remarkable transformation in 2025, emerging as a surprising leader in the stock market. Traditionally viewed as a defensive investment, utilities have become the second-best performing group within the S&P 500, driven by unprecedented demand linked to artificial intelligence (AI) and data centers. This shift marks a significant change in investor sentiment as utilities, often seen as stable but uninspiring, are now viewed through a growth-oriented lens.

Utilities Defy Market Trends

Notably, this year has not been characterized as a “risk-off” environment, where investors typically favor defensive stocks. In fact, many consumer staples and healthcare stocks are lagging behind. Yet, utilities have defied these trends, riding alongside the Nasdaq and S&P 500 to new heights. According to analysts at Citi, data centers could account for as much as 11% of electricity demand in the United States by 2030, a significant increase from 4.5% today. This surge is prompting utility companies to invest heavily in infrastructure modernization.

As utilities respond to this rising demand, they are increasingly seeking and winning formal rate increases from regulators. For instance, DTE Electric, a subsidiary of DTE Energy, successfully obtained a rate increase of $217 million from the Michigan Public Service Commission this January, translating to an additional $4.61 per customer, per month. Similarly, WEC Energy Group secured rate increases last year, which will take effect in 2025.

The AI Effect on Utility Growth

Utilities are making compelling cases to regulatory commissions by highlighting the increased electric demand from tech sector developments, particularly data centers. As these facilities expand to support the growing AI landscape, utility companies are becoming essential players in this burgeoning market. The combination of rising demand and municipalities’ willingness to invest in grid modernization and wildfire mitigation has fostered a robust bull market in the utility sector.

Despite a backdrop of mixed performance across other sectors, utility stocks are gaining traction. Currently, around 90% of utility stocks are trading above their 50-day and 200-day moving averages, compared to 73% and 64% for the broader S&P 500. This demonstrates the sector’s resilience and growing appeal to investors.

Several utility companies are at the forefront of this trend, showcasing solid potential for growth. Ameren Corp delivers electricity and natural gas in Missouri and Illinois, offering a 2.84% dividend yield while focusing on transitioning to cleaner energy. CenterPoint Energy provides services primarily in Texas and Indiana, paying a 2.29% dividend and concentrating on utility operations.

DTE Energy, which offers a 3.13% dividend yield, is also diversifying its portfolio with significant investments in renewable energy. The company’s strategic positioning is particularly notable given the rise of electric vehicles. Meanwhile, WEC Energy Group, boasting a 3.26% dividend yield, is focused on energy infrastructure and clean energy projects.

These utilities, while traditionally seen as defensive, are increasingly aligning themselves with one of the most significant growth narratives in the market. As demand for electricity surges due to AI, the companies powering the grid are becoming indispensable to this technological evolution.

Investment Insights and Risk Management

As investors consider these opportunities, Josh Brown highlights DTE Energy as a particularly attractive option. Following the company’s recent earnings report, Wells Fargo raised its price target from $145 to $154, reflecting confidence in the company’s ability to meet its long-term financial goals. Analysts anticipate that DTE will increase its current dividend yield by 6% to 8% annually through the end of the decade.

Investors eyeing this stock should focus on long-term investment rather than short-term trading, as the dividend yield contributes significantly to total returns. Maintaining a position through market fluctuations may prove beneficial, particularly given DTE’s solid support at its 50-week moving average. For those concerned about risk, this moving average can serve as a safety benchmark.

As the utility sector continues to evolve and adapt to the demands of a digital age, it presents investors with unique opportunities. The intersection of AI growth and utility infrastructure positions these companies as pivotal facilitators of the future energy landscape.