Financial markets/economy

Utilities stocks are driven by artificial intelligence

Posted by MoneyController on 22.05.2024

In the financial markets, the electricity-related utilities sector is usually included among ‘value’ investments. However, if one looks at the trajectory of recent months, it is surprising to see some performance comparable to that of certain growth stocks.

Utilities benefit from artificial intelligence

The reason that has propelled electricity-related utility stocks in the stock market seems clear: among the economic activities affected by the development of artificial intelligence are also utilities. The reason lies in the fact that artificial intelligence programmes and systems require the use of electricity. As we read in the Wall Street Journal in an article by Jason Zweig, Bespoke Investment Group found, for example, that in the past three months, three out of the five best performing stocks listed on the S&P 500 are utilities.

The underperformance of utilities in recent years

Until recently, the trajectory of the utilities underperformed the benchmark indices: Zweig reports, for example, the results of the Dow Jones Utility Index, which lost 7.2 per cent last year, while the S&P500 rose 26.3 per cent in 2023. Even stretching the timeframe, the utilities' performance lagged behind the growth of the S&P500 benchmark: a growth of 6.6 per cent per year against a growth of 15.7 per cent for the index.

Interest rates and bond competition

Last year, however, utility stocks had to contend with rising interest rates that, on the one hand, increased the cost of money and, on the other, increased investor interest in bonds at the expense of stocks such as energy stocks.

US reindustrialisation and AI drive electricity consumption

In the US, Zweig explains, electricity consumption had declined in recent years due to increasingly efficient consumption systems. Now, however, new trends are pushing consumption up. One important role is played by the reindustrialisation process in the US. The other growth driver, however, is the use of electricity in the artificial intelligence ecosystem (e.g. data centres).

Read also:

What is an investment megatrend?

TODAY’S MOST READ ARTICLES

24.06.2024 posted by WisdomTree

Hidden powerhouses: The role of iridium and rare earth elements in the energy transition

Continue reading

MOST READ ARTICLES OF THE WEEK

18.06.2024 posted by MoneyController

Focus China: from Warren Buffett's moves on the property market to the hunger for offshore investment

Continue reading

MOST READ ARTICLES OF THE MONTH

MOST READ ARTICLES IN THE FINANCIAL FORUM

View classification