The State Street Utilities Select Sector SPDR ETF (XLU) has long been viewed as a defensive investment, preferred by investors seeking stable cash flows, consistent dividends, and lower volatility. Since the fund’s inception in 1998, the ETF has grown to $23.65 billion in assets under management while maintaining a low 0.08% expense ratio. Holdings consist of 35 of the largest utility companies in the S&P 500, providing investors with broad exposure to the sector.
Top holdings include names like NextEra Energy (NEE), Duke Energy (DUK), Constellation Energy (CEG), and Vistra (VST) – all companies that are well positioned to benefit from the growing electricity demand created by AI data centers.
As technology companies continue to invest hundreds of billions of dollars in new AI infrastructure, utility companies that supply the power needed to operate these facilities could emerge as some of the industry’s most overlooked beneficiaries.
A Utility ETF Built for Stability
XLU tracks the Utilities Sector Index, providing investors with exposure to companies involved in electricity generation, transmission, distribution, and renewable power production.
Historically, the sector has been viewed as a safe haven during periods of heightened market uncertainty due to its relatively predictable earnings and consistent dividends. The fund maintains a current annualized beta of 0.61, with upside and downside capture that has historically been muted. Additionally, XLU has maintained 26 years of dividend payments, with a current trailing-twelve-month yield of 2.64%.
While stability has traditionally come at the expense of rapid growth, the introduction of AI has created a new catalyst for funds like XLU. According to research from Goldman Sachs, by 2030, AI is expected to increase data center power demand by 165%. This is supported by research from Deloitte, acknowledging that from 2024 to 2035, demand for AI data centers is expected to increase fivefold.
AI Runs on More Than Just Semiconductors
When investors think about artificial intelligence, companies like Nvidia (NVDA), Microsoft (MSFT), and Amazon (AMZN) usually are the first that come to mind. However, every AI model, cloud platform, and AI agent ultimately relies on a tremendous amount of electricity.
Training and operating these large language models (LLMs) require thousands of high-performance GPUs running 24/7 inside massive data centers. As such, these facilities require far more electricity than traditional infrastructure due to the intensive computing requirements and cooling systems.
Major technology companies continue to invest aggressively in AI Infrastructure. Collectively, Microsoft, Amazon, Google, and Meta have committed hundreds of billions of dollars toward expanding data center capacity over the next several years.
That investment is already translating into higher demand for electricity.
Why XLU Could Benefit
Many of XLU’s holdings are working to expand generation capacity, modernize infrastructure, and strengthen the electric grid to support this growing demand.
Two holdings with direct AI upside include:
NextEra Energy (NEE) – the largest holding in XLU and one of North America’s largest producers of wind and solar power. As hyperscaler data centers seek additional electricity to meet AI-driven demand, NextEra’s expanding renewable generation and transmission infrastructure position it to benefit from the sector’s long-term growth.
Constellation Energy (CEG) – operates the nation’s largest fleet of nuclear power plants, providing reliable, around-the-clock carbon-free electricity. Dependable baseload generation has made the company an increasingly important partner for technology companies looking to secure long-term power supplies for AI data centers.
Additionally, unlike many AI stocks trading at premium valuations, utilities offer investors exposure to the trend through businesses with established cash flows, solid dividend yields, and more attractive multiples. The valuation multiples for XLU are included in the table below.
| Price/Earnings | 18.82x |
| Price/Book | 2.14x |
| Price/Sales | 2.71x |
| Price/Cash Flow | 8.15x |
Final Thoughts
Utilities have long been a preferred allocation for defensive investors seeking stable cash flows, consistent dividends, and lower volatility. However, AI may be changing this perception.
As AI infrastructure continues to be built out, the need for energy increases.
In the traditional sense, XLU is not an AI ETF; however, for investors looking to diversify beyond the market’s obvious winners, the fund offers exposure to the infrastructure making the AI revolution possible. Sometimes the most compelling investment opportunities aren’t found in the companies building the technology, but in those quietly supplying the power behind it.
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