Utilities have always had a reputation for being a "sleepy" corner of the stock market. Steady, predictable dividend payers one bought late in the bull market to preserve a portfolio. Naturally, this classification has not been attractive in one of the strongest bull markets in history that saw numerous tech-driven growth stocks dominate the market.

Yet, 2025 has turned the stereotype on its head, with the sector returning over 15% year-to-date and outpacing the S&P 500 itself. On the surface, some of that strength still stems from the familiar "defensive" appeal--when markets become volatile, investors allocate money to companies that sell essential goods, such as electricity, water, and gas.

But beneath this surface runs a far greater catalyst. Artificial intelligence is consuming power at unprecedented speed, and America's utilities are now the critical link in the trillion-dollar AI data-center boom.

The AI Power Surge

Running large AI models is no small trick. Training a system like GPT-4 can require continuous loads of approximately 30 megawatts--enough to power around 20,000 homes. The International Energy Agency projects data center electricity use to more than double by 2030.

Think about Northern Virginia's "Data Center Alley". Demand there alone could quadruple by the end of the decade, accounting for half of Virginia's entire grid.

For utilities, that isn't just a headline--it's revenue. The need for reliable, 24/7, low-carbon energy aligns perfectly with utilities' nuclear and natural-gas portfolios. Partnerships like Meta's deal with Constellation Energy (NASDAQ: CEG) and Amazon's with Talen Energy (NASDAQ: TLN) are clear examples.

Hyperscalers need secure long‑term offtake, and utilities are the ones who can guarantee it. In this new landscape, utilities aren't just defensive--they're growth stocks hidden in plain sight.

A "Set And Forget" Core: ETFs

For generalist investors who don't want to research individual tickers, a basket approach makes sense. Two stand out:

• Utilities Select Sector SPDR (NYSE: XLU): The classic utilities ETF, with heavy weightings in electric majors like NextEra and Southern. Cheap fees (0.08%) make it the sector's default.
• Vanguard Utilities ETF (NYSE: VPU): Slightly broader, with gas and water exposure layered on top. It also relies on NextEra and Southern, but spreads risk across more than 60 names.

Both offer dividend yields in the 2.5–3% range and provide broad exposure to the very companies that are signing long-term AI energy contracts. For set‑and‑forget portfolios, VPU and XLU anchor the trade.

Individual Opportunities

For stock pickers, individual names offer sharper opportunities in the AI‑power story. Three standouts: Entergy (NYSE: ETR), DTE Energy (NYSE: DTE), and Constellation Energy. Each blends core defensive traits with direct exposure to data‑center expansion.

Based in the Southeast, Entergy brings the trifecta: low‑cost electricity, strong nuclear assets, and direct contracts with hyperscalers. It has partnered with Meta on its Louisiana Hyperion data center, and its project pipeline has 5–10 gigawatts of potential new load from data centers alone.

The fundamentals are also improving--operating cash flow growth is well above the sector average, and its return on equity is over 11%. With the Southeast emerging as a new AI hub due to cheaper land and power, Entergy feels like one of the purest plays on this transition.

Michigan’s DTE Energy owns a similar story. Its Fermi 2 nuclear plant provides reliable baseload energy in a region hungry for new AI facilities. Management has disclosed 7 gigawatts of potential new load under active talks with hyperscalers.

DTE balances that growth with defensive appeal: a 28‑year dividend history and 15 years of consecutive dividend increases. Profitability metrics shine (ROE of 13%, operating cash more than double the sector median). For investors wanting a blend of income stability and AI growth tailwinds, DTE delivers.

Constellation Energy is the largest domestic operator of nuclear power plants, positioning itself as a key backbone of AI power growth. A recent landmark agreement with Meta sent shares up double digits, and Amazon has tapped into its nuclear fleet as well.

However, after doubling up over the past year, its valuation is rich, and its yield is low. However, in a world where uptime and carbon-free energy are mission-critical for hyperscalers, Constellation effectively holds the pricing power that others lack.

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