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Data Centers Fuel Power Surge: How AI’s Electricity Demand is Igniting Utility ETFs

HomeData Centers Fuel Power Surge: How AI’s Electricity Demand is Igniting Utility ETFs

Data Centers Fuel Power Surge: How AI’s Electricity Demand is Igniting Utility ETFs

Data Centers Fuel Power Surge: How AI’s Electricity Demand is Igniting Utility ETFs

AI Power Surge Ignites Utility Sector Boom, Driving Strong Performance for Utility ETFs

The recent explosive growth of Artificial Intelligence (AI) has triggered a massive tailwind for utilities, historically characterized as a sluggish and stable sector. This phenomenon is directly tied to the burgeoning electricity demand from power-hungry data centers required to train and run sophisticated AI models.

Data Centers Boom Energizing Utility ETFs

Modern AI data centers are significant consumers of power, often drawing as much electricity as a small city, 24/7. The computational demands of AI, including deep learning and running large language models, necessitate massive processing power. A report from the International Energy Agency (IEA) states that data centers consumed about 1.5% of global electricity in 2024— roughly 415 terawatt-hours (TWh). In this regard, the United States accounted for approximately 45%.

Therefore, as data centers struggle to build out infrastructure for machine learning and other computationally intensive applications, electric utilities have become indispensable partners. Consequently, utility ETFs have emerged as central beneficiaries of this megatrend.

Looking ahead, the IEA projects electricity demand from data centers worldwide to more than double by 2030 to around 945 terawatt-hours (TWh). Interestingly, this figure is slightly more than the entire electricity consumption of Japan (as reported in April 2025).

For utility companies, this represents a multi-decade, high-certainty growth opportunity. Notably, they are encouraged to invest significant capital in expanding power generation and upgrading their transmission grids. As regulated utilities can often secure rate increases from regulators to cover these investments, it translates directly into higher earnings. Consequently, the underlying companies and consequently the ETFs holding them benefit significantly.

Utility ETFs Capitalizing on the AI Power Surge

Utility ETFs, particularly those holding prominent U.S. utility stocks, offer investors exposure to companies providing essential energy to the digital economy. The United States is leading the AI power boom. These include:

Utilities Select Sector SPDR Fund (XLU)

This ETF includes companies from the electric utilities; water utilities; multi-utilities; independent power and renewable electricity producers; and gas utilities industries. Interestingly, the Electric Utilities industry comprises 64.2% of this fund, with U.S.-based utilities NextEra Energy (11.29%) and The Southern Company (7.82%) constituting its top three holdings.

XLU has gained approximately 7.6% over the past year. The fund charges a mere 8 basis points (bps) as fees.

Vanguard Utilities ETF (VPU)

This ETF includes electric, gas, and water utility companies as well as companies that operate as independent producers and/or distributors of power. Notably, the Electric Utilities industry comprises 60.7% of this fund, with U.S.-based utilities NextEra Energy (10.34%) and The Southern Company (6.78%) constituting its top three holdings.

VPU has gained approximately 7.7% over the past year. The fund charges a minimal 9 bps as fees.

iShares U.S. Utilities ETF (IDU)

This ETF includes U.S. companies that supply electricity, gas, and water. Interestingly, the Electric Utilities industry comprises 56.1% of this fund, with U.S.-based utilities NextEra Energy (9.72%) and The Southern Company (6.87%) constituting its top three holdings.

IDU has gained approximately 8.1% over the past year. The fund charges a moderate 38 bps as fees.

Fidelity MSCI Utilities Index ETF (FUTY)

This ETF includes U.S. utility companies. Noteably, the Electric Utilities industry comprises 60.4% of this fund, with U.S.-based utilities NextEra Energy (10.26%) and The Southern Company (7.01%) constituting its top three holdings.

FUTY has gained approximately 8.6% over the past year. The fund charges a minimal 8 bps as fees.

Conclusion

The AI power surge is creating unprecedented growth opportunities for utility companies, translating into exceptional performance for utility ETFs. With data centers becoming increasingly reliant on electricity to support their operations and drive AI advancements, the demand for power will rise substantially in the coming years. Utility companies are poised to capitalize on this growth trend by investing heavily in expanding generation capacity and upgrading transmission grids. In turn, this should result in significant increases in earnings for these companies and their respective ETFs.

Investors seeking exposure to the digital economy can benefit from adding sector ETFs to their portfolios. By leveraging the strong performance of utilities and focusing on companies driving innovation within this industry, investors may be able to mitigate potential risks while gaining substantial upside.

For utility companies looking to capitalize on growth opportunities driven by AI, prioritizing strategic investments in renewable energy sources will not only support grid resilience but also contribute significantly to decarbonization efforts.