AI Power Surge: How Is the Data Center Boom Energizing Utility ETFs?

The explosive growth of Artificial Intelligence (AI) in recent times has ignited a massive tailwind for utilities, traditionally known as a sleepy, stable, and slow-growth sector, translating into strong performance for Utility Exchange-Traded Funds (ETFs). This boom is directly tied to the burgeoning electricity demand from power-hungry data centers that are required to train and run sophisticated AI models.

Notably prominent utility ETFs, Utilities Select Sector SPDR Fund (XLU), Vanguard Utilities ETF (VPU), iShares U.S. Utilities ETF (IDU) and Fidelity MSCI Utilities Index ETF (FUTY), with heavy weightage toward Electric Utilities, have surged more than 7% over the past year, outperforming the Utility Sector’s growth of 5%.

Data Centers’ Boom Energizing Utility ETFs

Modern AI data centers are immense consumers of power, often drawing as much electricity as a small city, 24/7. The computational demands of AI, from deep learning to running large language models, require massive processing power. Data centers consumed about 1.5% of global electricity in 2024 — roughly 415 terawatt-hours (TWh) — with the United States accounting for 45%, as stated by a report from the International Energy Agency (“EIA”).

Therefore, as data centers scramble to build out infrastructure for machine learning and other computationally intensive applications, electric utilities have become indispensable partners, making utility ETFs central beneficiaries of this megatrend.

Looking ahead, IEA projects electricity demand from data centers worldwide to more than double by 2030 to around 945 terawatt-hours (TWh), slightly more than the entire electricity consumption of Japan (as of April 2025).

For utility companies, this represents a multi-decade, high-certainty growth opportunity, encouraging them to invest significant capital in expanding power generation and upgrading their transmission grids. Since regulated utilities can often secure rate increases from regulators to cover these investments, it translates directly into higher earnings, boosting the underlying companies and consequently the ETFs holding them.

Utility ETFs Capitalizing on the AI Power Surge

Utility ETFs, particularly those holding prominent U.S. utility stocks, offer investors exposure to companies providing essential energy to the digital economy, with the United States leading the AI power boom. These include:

Utilities Select Sector SPDR Fund (XLU)

This ETF includes companies from electric utilities; water utilities; multi-utilities; independent power and renewable electricity producers; and gas utilities industries. The Electric Utilities industry comprises 64.2% of this fund, with U.S.-based utilities NextEra Energy (11.29%) and The Southern Company (7.82%) constituting its top three holdings.

XLU has gained 7.6% over the past year. The fund charges 8 basis points (bps) as fees.

Vanguard Utilities ETF (VPU)

This ETF includes electric, gas, and water utility companies as well as companies that operate as independent producers and/or distributors of power. The Electric Utilities industry comprises 60.7% of this fund, with U.S.-based utilities NextEra Energy (10.34%) and The Southern Company (6.78%) constituting its top three holdings.

VPU has gained 7.7% over the past year. The fund charges 9 bps as fees.

iShares U.S. Utilities ETF (IDU)

This ETF includes U.S. companies that supply electricity, gas, and water. The Electric Utilities industry comprises 56.1% of this fund, with U.S.-based utilities NextEra Energy (9.72%) and The Southern Company (6.87%) constituting its top three holdings.

IDU has gained 8.1% over the past year. The fund charges 38 bps as fees.

Fidelity MSCI Utilities Index ETF (FUTY)

This ETF includes U.S. utility companies. The Electric Utilities industry comprises 60.4% of this fund, with U.S.-based utilities NextEra Energy (10.26%) and The Southern Company (7.01%) constituting its top three holdings.

FUTY has gained 8.6% over the past year. The fund charges 8 bps as fees.

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This article originally published on Zacks Investment Research (zacks.com).

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