A 18% surge in three months, power stocks emerge as the "hidden winners" in the AI boom

Under the wave of artificial intelligence, an unexpected "winner" emerges - utilities, this traditional industry is now leading Wall Street.

A large number of newly built data centers require massive power supply, injecting sustained growth momentum into utility companies. In the past three months, the S&P 500 utilities sector surged by 18%, ranking first among all industries. Year-to-date, Texas power producer Vistra's stock price has skyrocketed by 140%, outpacing Nvidia's 96% increase.

According to media reports citing analysts' views on Tuesday, while utility stocks may be difficult to reach the high valuations of tech giants, as "defensive" stocks with high certainty and stable dividends, their investment value has been rediscovered.

More and more traders and investors are starting to see the long-term growth prospects of utility stocks. John Bartlett, President of Reaves Asset Management, stated:

This is the direction of future development. As a seasoned utility investor, he now focuses most of his attention on the development plans of cloud computing giants, such as Google, Amazon, and Microsoft, which are investing billions to build artificial intelligence systems. What really needs attention is their impact on power demand.

Citigroup analysts previously estimated that by 2030, the share of data center power demand could reach 10.9% in the United States, a significant increase from the current 4.5%. If this expectation comes true, it means the need to build more power plants, transmission lines, and other infrastructure, which will bring more returns to utility companies.

Could this push up inflation?

This round of rebound was initially led by independent power producers and gradually expanded to regulated utility companies.

Analysts warn that companies with less close ties to data centers may lag behind in the industry. Another possibility is that economic growth may slow down or the artificial intelligence boom may fade before utility companies increase capital spending. The longer-term risk is that if electricity prices rise or if there is heavy pollution from power generation, regulators may increase control over the industry.

If the expected growth in power demand does not materialize, analysts and commentators warn that this could bring decades of high costs to users.

Jim Lydotes, Deputy Chief Investment Officer of Newton Investment Management, stated:

The risk is that this construction boom may bring inflationary pressures, and costs will ultimately be passed on to consumers.

As more utility companies propose new construction plans, the conflict between user interests and shareholder returns may intensify. In order to finance new projects, utility companies may have to raise funds through stock issuance, and regulators may limit the return on equity of utility companies, reducing the investment attractiveness of these companies. Lydotes stated: Utility companies will have to raise funds to support this growth, while regulatory agencies must control their returns within acceptable limits