Utility Stocks Surpass Nvidia (NVDA) Performance, Even Prior to Dividend Inclusion

• Nvidia stock investors are celebrating a trillion reasons, but surprisingly, two S&P 500 utility stocks have outperformed Nvidia this year.
• Shares of utilities Vistra (VST) and Constellation Energy (CEG) have surpassed Nvidia’s 81.5% gain this year, according to an analysis by Investor’s Business Daily.
• “Investors are starting to kick the tires on the sector as a potential derivative play to the AI boom,” says Adam Turnquist of LPL Financial.

Discover why two S&P 500 utility stocks are outperforming Nvidia this year and how the AI boom is influencing the utilities sector.

The Unexpected S&P 500 Utilities Rally

Contrary to the common perception of utilities as a safe haven for conservative investors, the sector has seen a significant rally this year. The Utilities Select Sector SPDR Fund (XLU) has risen 12.5% this year, outperforming the Technology Select Sector SPDR, which has only gained 6.8%. The surge in utilities is not just a defensive investment strategy; it’s a response to the growing power consumption of AI models, which is a windfall for utilities.

Utilities Gearing Up for AI Demand

As AI models require more power, utilities are preparing to meet this new demand. “Total capital expenditures among a collection of 34 power utilities in the country are forecast to increase by 30% from 2022 to 2026,” says Turnquist. This growth in utilities is a direct result of the AI boom and the subsequent increase in power consumption.

Nvidia’s Unexpected Competitors

Vistra and Constellation Energy have emerged as surprising competitors to Nvidia. Vistra’s shares have soared 143% this year, making it the second-best S&P 500 stock. Analysts predict the company’s earnings will grow by more than 106% in 2024. Similarly, Constellation Energy’s stock has risen over 83% this year, and its profits are expected to increase by 7% in 2024.

Conclusion

The utilities sector, traditionally seen as a safe and steady investment, has seen a significant rally this year, outperforming even tech giants like Nvidia. This unexpected surge is largely due to the increasing power demands of AI models, which has led to increased investment and growth in the utilities sector. As AI continues to evolve and grow, utilities are likely to continue their upward trajectory.