Utilities Are Up 8% on AI Power Demand. The Fund Actually Building the Data Centers Is Up 40%
Utility stocks are riding the AI power wave, but the companies actually bolting together the data centers are running a very different race. Knowing which fund owns which part of the chain could change how you size your next trade.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) has quietly become one of the more popular AI-adjacent trades on Wall Street. Utility stocks, long treated as bond proxies, are being repriced as the backbone of electricity for hyperscaler data centers. XLU holders own that thesis at a rock-bottom 0.08% expense ratio, with 57.92% of the fund concentrated in 10 regulated operators such as NextEra, Duke, and Constellation. The problem is that XLU captures the slowest-moving link in the AI power chain. The companies actually building the data centers, the switchgear, and the on-site generation sit in a different fund entirely.
What XLU Actually Owns
Regulated utilities that sell electrons under state-approved rate structures make up the bulk of XLU. NextEra Energy alone accounts for 13.59% of the fund, with Southern Company at 7.47% and Duke Energy at 7.15% right behind. These operators do benefit from rising data center load, though their earnings remain capped by allowed returns on equity that regulators approve on multi-year cycles. A hyperscaler signing a 24 GW load commitment does not immediately flow through to shareholder earnings the way a purchase order for a transformer would.
Recent performance reflects that lag. XLU is up 5.27% year-to-date and 6.4% over the trailing year. That is a respectable defensive return, but it undersells the AI-powered story that drew many buyers to the fund in the first place.
The Fund Building the Buildout
The alternative is the Defiance AI & Power Infrastructure ETF (NASDAQ:AIPO), which holds equipment makers, engineering contractors, and power producers that are paid when a data center is under construction. AIPO is up 29.43% year to date and 39.13% over the past year, a spread of more than 30 percentage points against XLU over the same twelve months.
The composition explains the gap. AIPO’s top four holdings are Quanta Services at 7.91%, Vertiv Holdings at 7.24%, GE Vernova at 7.21%, and Eaton at 7.10%. These four alone represent 29.46% of assets. The list continues into liquid cooling, small modular reactors, transformer makers, and AI silicon from NVIDIA and Broadcom. Per Motley Fool coverage from May 2026, roughly 80% of the portfolio is allocated to grid equipment, engineering services, and power generation, with the remaining 20% allocated to chips and data infrastructure names. Assets have grown to $750.87 million since the July 2025 launch.
The Cost of the Edge
With an expense ratio of 0.69%, AIPO charges roughly 8.6 times as much as XLU. That is a meaningful gap, though the return spread over the past twelve months has more than absorbed the difference. The concentration also cuts both ways, because AIPO’s top ten holdings represent 54.71% of the fund, and any slowdown in data center capex would hit it harder than a rate cycle would hit XLU. Back in July 2026, EBC Financial Group described AIPO as “best suited as a higher-risk satellite holding rather than a core portfolio position.”
A Broader Second Option
Investors seeking infrastructure exposure without AIPO’s concentration can consider the ALPS Electrification Infrastructure ETF (NASDAQ:ELFY). ELFY runs an equal-weighted book across roughly 80 to 110 names spanning transformers, transmission, battery tech, uranium miners, and utilities, at a 0.50% expense ratio. It is up 16.37% year-to-date and 21.08% over the past year, splitting the difference between XLU’s defensive return and AIPO’s concentrated return. It also pays a 1.01% to 1.03% dividend yield, which softens the trade-off relative to XLU’s income profile.
Considerations Before Rotating
The swap changes the risk profile as XLU is a rate-sensitive, dividend-heavy sector fund. AIPO is a thematic infrastructure vehicle with cyclical industrial exposure. Selling XLU in a taxable account will trigger capital gains for anyone who bought before the AI narrative took hold. A partial rotation, sizing AIPO or ELFY as a satellite while keeping XLU as the income sleeve, preserves the defensive characteristics that originally drew many investors to the utilities sector.
Sizing the Trade to the Thesis
The right allocation depends on which part of the AI power story the reader wants to own. XLU delivers electricity to the supplier. AIPO delivers the companies building the physical plant. ELFY delivers a diversified read on the entire electrification cycle. The performance gap of the past year suggests the market is pricing the builders far more aggressively than the operators, and any decision to switch or blend should be weighed against how long that gap is expected to persist.
Contact [email protected] for any questions or corrections.
David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
