Utilities Sector Returns 10.2% as Investors Seek AI-Powered Safety
The utility sector is decisively outperforming the broader market in 2026 as investors navigate geopolitical instability and identify new growth catalysts. The Utilities Select Sector SPDR exchange-traded fund has delivered a 10.2% total return this year, while the S&P 500 has fallen 2.6%. This divergence highlights a flight to defensive, hard-asset stocks as a war in the Middle East heightens market volatility. Investors are gravitating toward the sector's reliable dividend yields, which stand at approximately 2.5%—more than double the S&P 500's 1.2% payout.
However, this is not just a traditional defensive play. The sector's recent strength is equally fueled by a structural growth story linked to the artificial intelligence boom. While the market has become more cautious on technology stocks, the undeniable energy appetite of AI infrastructure is creating a clear tailwind for power producers. This dual-driver environment provides both a defensive floor and a compelling growth ceiling for utility equities.
AI Data Centers Forecast 2-3% Annual Electricity Demand Growth
The AI revolution's immense power consumption is reshaping the investment thesis for utilities. Analysts forecast that electricity demand is set to expand by 2% to 3% annually, driven almost entirely by the build-out of new data centers. According to Jefferies, utilities that can effectively manage this growth without imposing significant price hikes on customers are "uniquely positioned to capture this upside."
The scale of this new demand is substantial. In California alone, utility PG&E projects that data centers could add 10 gigawatts of demand over the next decade—an amount equivalent to four times the capacity of the Diablo Canyon nuclear plant. This unprecedented demand growth is forcing a rapid expansion of power generation, positioning utility companies as primary beneficiaries of the AI infrastructure race.
Evergy Leads Select Utilities With 10.8% Projected Profit Growth
For investors seeking a balance of income and growth, several utility stocks stand out. A screen for companies with dividend yields over 3% and strong earnings growth projections for 2026 reveals a short list of compelling opportunities. Evergy (EVRG), which serves Kansas and Missouri, leads the group with a 3.4% dividend yield and an analyst consensus forecast for 10.8% profit growth in 2026, implying a potential total return of over 14%.
Despite rallying 24% over the past year, Evergy still trades at 19 times forward earnings, only a slight premium to the sector average of 18 times. Other notable companies meeting these criteria include New Jersey's Public Service Enterprise Group (PSEG) with a 3.2% yield, Ohio-based FirstEnergy (FE) offering a 3.7% yield, and New York's Consolidated Edison (ED) with a 3.1% yield. These firms offer investors direct exposure to the sector's favorable dynamics.
