Utilities Post Seventh Consecutive Gain: “Potential Derivatives Play for AI Boom” – SPDR Select Sector Fund – Utilities (ARCA:XLU)

Utilities are rarely in the spotlight of market headlines and are often overshadowed by the exponential growth of tech giants and the emergence of leaders in artificial intelligence.

Despite the lack of attention, the utilities sector, represented by the Utilities Select Sector SPDR Fund (NYSE:XLU) quietly achieved its seventh straight session in the green on Thursday, outperforming all other sectors in the S&P 500 year-to-date.

With a performance of around 13.6% since the beginning of the year, utilities are well ahead of the energy sector, as measured by SPDR fund for the energy sector (NYSE:XLE) and the doubling of the technology sector's returns, represented by Technology Select Sector SPDR Fund (NYSE:XLK).

Chart: Utilities are outperforming every S&P 500 sector year-to-date

The real recovery for utilities appears to have begun less than a month ago. Since April 17, this sector has recorded 15 out of 17 sessions in the green, indicating a significant change in investor sentiment.

Chart: Utilities up 14% since mid-April

Energy suppliers are gaining power again, says expert

“Investors are starting to look at the sector as a potential offshoot of the AI ​​boom.” Adam Turnquistchief technical strategist at LPL Financial, wrote in a note.

According to the International Energy Agency (IEA), global data center electricity demand could rise to 650 to 1,000 terawatt hours (TWh) by 2026, up from 460 TWh in 2022.

The expert emphasized that increasing power demand in data centers could provide a major tailwind for the utility sector.

Also read: AI data centers boost electricity demand: Goldman Sachs picks 16 stocks to capitalize on the trend

The focus on data centers also dominated recent earnings calls. For example, Dominion Energy Inc. (NYSE:D) serves Northern Virginia, home to the world's largest data center market, carrying approximately 70% of global Internet traffic.

In its May 2 conference call, Dominion noted a significant increase in demand for data centers and noted changes in the volume and pace of requests.

Turning to the technicals, Turnquist highlighted that the S&P 500 Utilities Sector vs. S&P 500 ratio chart, which tracks trend direction and strength, recently reversed its own downtrend and has broken above its 200 moving average for the first time in over a year. Daily average has increased. This suggests potential for further outperformance from the utilities sector.

Chart: Relative performance of utilities compared to the S&P 500 rises above the 200-day average

Now read: Investors flock to the lower-cost Vanguard S&P 500 ETF: Is it time to switch from SPY to VOO?

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