Artificial Intelligence Revitalizes Utility Stocks and Shakes Up the S&P 500

The enthusiasm of the tech industry for artificial intelligence is driving up the demand for electricity—and is delivering impressive returns in the utilities sector of the S&P 500. While utilities have been among the market leaders throughout the year due to the AI wave, shares of independent electricity producers Vistra and Constellation Energy have seen significant gains, especially in the past month. A groundbreaking agreement that Constellation reached with Microsoft to supply nuclear power has given additional momentum to the upward trend. Vistra, favored by Third Point LLC's Daniel Loeb for its AI connections, experienced a surge of more than 230 percent in its stock price this year, far exceeding Nvidia's 168 percent. Constellation ranks fourth with an increase of nearly 140 percent, while NRG Energy and GE Vernova are also among the top ten on the list. Just last year, chip manufacturers and AI specialists like Meta dominated the top positions. The prospect of strong growth potential in the electricity sector due to AI has prompted investors to seek more cost-effective ways to invest in the AI sphere without relying on more expensive technology stocks. This development has led Vistra and Constellation to repeatedly reach new highs, as they can sell electricity at market prices as independent power producers, unlike regulated utilities. Analysts have revised their price targets for Constellation upward following the Microsoft deal. Experts see further growth potential in the electricity supply market and new data center deals that improve the business environment. This positive sentiment is also reflected in the expectation of further agreements for independent power producers, which may be the first stop for energy-hungry hyperscalers like Amazon, Google, and Meta. Simultaneously, the utilities sector remains a stable investment with solid dividends, making it attractive in times of interest rate changes. These factors have led to the utilities sector in the S&P 500 outperforming the broader market with a 25 percent increase this year. Nevertheless, the situation remains volatile, as the Federal Reserve's interest in rate cuts could affect the balance. Vistra and Constellation shares recently experienced a setback when it became unclear whether further rate cuts could be expected. Nonetheless, this rally shows the potential that the AI trade movement could unlock in other areas in the future.