The Utilities Sector shows strong improvement over the past few months, due to ongoing AI data center investments and the defensive nature of the sector.
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As artificial intelligence continues to evolve, areas like the Utilities Sector are poised to benefit from natural tailwinds. According to a study conducted by Deloitte, roughly 75% of major power utility firms report rising demand from data centers (source: Deloitte.com). As investments into AI data centers continue to increase, the reported number of major power utility firms seeing an uptick in data centers demand will only increase as well. This trend, coupled with the defensive nature of the Utilities sector, could provide an opportunity for investors who want both upside potential and low risk.
Although Utilities rank 7th in DALI, the group ranks third among sectors on the Asset Class Group Scores page. The group maintains an average score of 4.64, with a positive score direction of 1.11, demonstrating the strength of the sector. The Utilities sector representative XLU has shown strong improvements since the end of June, outperforming the broader market by nearly 6% (12.53% vs 6.84%).
A stock that is likely to benefit from AI tailwinds is Entergy Corporation (ETR). The stock is facing resistance at $98 and is setting up for a possible double top break at $99, which would mark its fifth consecutive buy signal and a new all-time high. The 5 for 5’er has been on a positive trend since late 2023 and ranks in the top quartile of the Utilities/Electricity sector matrix. Additionally, the stock offers a yield of 2.4%. Long exposure be made here. Initial support is at $95, with additional support at $87.
The Utilities Select Sector SPDR Fund (XLU) gave its third consecutive buy signal, after completing a bullish catapult earlier this month at $88. XLU has a fund score of 4.35, with a score direction of 0.90. Additionally, the fund offers an impressive yield of 2.65%. The weekly OBOS indicates that the fund is in overbought territory, so wait for the 10-week trading band to normalize before considering. Initial support is at $83, with additional strong support at $80.
