Utilities & the AI Energy Boom Meet Their Biggest Obstacle Yet
Utilities are capitalising on favourable market conditions, including the growing demand for energy associated with AI-related infrastructure. Yet interest rates continue to exert a critical influence on the sector's performance. Treasury yields remain a constraining factor, and until we see a meaningful shift, the sector may continue to face challenges despite its underlying strength.
Utilities are one of the quiet winners of the AI data center supercycle, and the State Street Utilities Select Sector SPDR ETF (XLU) is sitting at $46, about 4% off its all-time high set in late February. The bull case is real. Power demand is rising faster than we’re building capacity for the first time in two decades. Utility CapEx is at record highs, and data centers are driving what are normally slow-moving, often-monopolistic entities into upping their pace.