Utilities stocks show early recovery as AI power demand grows

Utilities stocks show early recovery as AI power demand grows

Utilities are showing early signs of recovery, but the opportunity depends on whether returning investor interest spreads beyond a handful of AI power stocks. 

Sector assessment: Through the September 8, 2026 U.S. close

Utilities stocks are beginning to attract attention again after a difficult summer. In investingLive’s latest sector-rotation assessment, the group has moved from Cooling Off to Early Accumulation, supported by improving fund demand, better performance against the broader market and wider participation. This is an early improvement signal, with sustained leadership still to be established.

The investment question is becoming more interesting: can a sector traditionally associated with dividends and steady demand also benefit from the electricity needs of artificial intelligence?

Key takeaways for utilities investors

• Utilities have improved in our sector assessment, but several stronger sessions do not establish a lasting trend.

• AI data centers add a potential growth driver through demand for electricity generation and grid investment.

• XLU offers sector exposure, while NextEra Energy, Constellation Energy and Vistra introduce different company risks.

• Continued inflows, broad participation and resilience to high bond yields would strengthen the case.

What early accumulation means for utilities stocks

Early accumulation describes a stage when the evidence starts improving before there is broad agreement that a sector is attractive. Investors may be rebuilding exposure following a period of weak demand.

Our assessment identifies that developing pattern in utilities. It is an analytical classification, not proof that institutions are uniformly buying or that prices have reached a lasting bottom.

Three changes matter together: fresh demand for sector funds, improving performance relative to the S&P 500, and more utility stocks participating in the recovery. Our flow assessment points to renewed weekly ETF inflows. The persistence of that demand remains unproven.

There is also visible price evidence. During September 8 trading, XLU was heading for a fifth consecutive gain after an eight-month low near the end of August, with all 31 equity holdings higher at the time of the report. That was an intraday snapshot, rather than a final closing breadth count. MarketWatch’s utilities update

I would give more weight to that combination than to a single strong stock. Broad participation makes a sector recovery more credible, although investors still need to see it persist.

Why AI electricity demand matters for utility investors

AI runs on computers housed in data centers. Those computers need electricity, creating opportunities for power generation, transmission and grid upgrades.

A concrete example emerged on September 8. According to Reuters, NextEra secured a U.S. government loan of up to $1.9 billion for the restart of Iowa’s Duane Arnold nuclear plant. The project is supported by a 25-year Google power-purchase agreement, with a restart targeted for early 2029, subject to regulatory approvals. Reuters reporting

For investors, a long-term customer agreement makes the demand story more tangible. However, financing a project today does not mean its full earnings contribution arrives this quarter.

The distinction matters across the sector. A utility must fund construction, secure approvals and earn an adequate return. More electricity demand can support business growth without automatically making every related stock attractive at its current price.

How utilities fit into the broader sector rotation

The latest investingLive assessment places the tracked sectors in three groups:

Early Accumulation: Utilities and MaterialsUtilities is the new addition. These are areas where the assessment detects improving investor interest before established leadership.

Overcrowded: Technology, Energy and HealthcareThese labels flag heavier positioning within the assessment. Crowding can increase sensitivity to disappointment, but it does not mean a decline is imminent.

Cooling Off: Financials and IndustrialsThese groups show fading strength in the current assessment. That is a relative assessment, not a short-selling instruction.

The strongest recent performer and the earliest developing opportunity can be different sectors. Utilities does not have to replace Technology as the market leader to become worth monitoring.

For more background, see investingLive’s guide to how stock-market sector rotation works.

Four ways to express the utilities investment theme

1. XLU: exposure to the sector

The Utilities Select Sector SPDR ETF holds utilities from the S&P 500. It spreads exposure across businesses including electric, gas and water utilities and power producers. It reduces reliance on choosing one winner, although it remains concentrated in one sector. State Street’s XLU fund overview

An investor considering an early position could start smaller than usual and add only if outperformance and positive flows persist. After several strong sessions, a pullback that holds above the recent low could provide a clearer place to define risk.

A renewed price breakdown combined with fresh relative lows and outflows would weaken the thesis.

Let’s jump into my daily chart of XLU and what I am watching:

• XLU is recovering from its late-August lows. Each candle represents one trading day. The rebound toward $43.45 shows improving buying interest, although the ETF remains below its summer highs.

• The horizontal bars show where trading took place. This is called a volume profile: longer bars mean more shares traded around that price during the selected period covering 2026. It shows activity by price, rather than by day.

• The blue lines mark the year’s value area, approximately $43.40 to $46.65. This is the range containing the bulk of the profile’s trading volume, typically around 70%. “Value” here describes trading activity, not whether the ETF is fundamentally cheap.

• I’m watching whether XLU can re-enter and hold inside that value area. Price is now testing its lower boundary around $43.40-$43.50. Sustained trading above it, followed by pullbacks that hold, would provide stronger evidence of recovery than a brief move across the line.

• The red line near $45.85 marks the most heavily traded price in the profile. If XLU establishes itself back inside the value area, that becomes a reference to monitor further above, rather than a guaranteed destination.

• A rejection at the lower boundary would weaken the recovery signal. That would suggest buyers have yet to regain the year’s main trading range, keeping the recent lows relevant and the early-accumulation case unconfirmed.

2. NextEra Energy (NEE): a focused company approach

NextEra provides a way to follow the nuclear restart alongside its wider utility and generation businesses. The Google agreement gives investors a specific project to monitor, although NEE is not a pure investment in that project alone.

Useful confirmation would include progress toward approvals, delivery within budget and stronger earnings expectations. Delays, cost overruns or rising financing costs would weaken the case. A good project announcement should still be weighed against the price paid for the shares.

3. Constellation Energy (CEG) or Vistra (VST): power-generation exposure

These names offer more focused exposure to the electricity-generation theme and should be treated as potentially more volatile company positions. Vistra, for example, announced long-term nuclear power agreements with Meta, illustrating how technology demand can translate into contracts. Vistra’s announcement

A possible approach is to watch for consolidation while sector strength holds, rather than assuming every AI-related rally offers an attractive entry. Contract terms, operating costs and hedging affect how much higher electricity demand or prices reach profits.

Weaker project demand, regulatory intervention or disappointing earnings would challenge the idea. Higher exposure to a theme also brings greater exposure to its disappointments.

4. XLU plus a smaller individual-stock position

An investor could use XLU as the larger sector holding and add a smaller position in a selected power company. This combines broader sector exposure with a deliberate company preference.

Check the ETF’s holdings first. If it already owns the selected stock, the additional purchase increases that company’s total portfolio weight. It is added concentration, even though it sits beside an ETF.

For any approach, decide the exit condition and acceptable loss before entering. A sector view alone does not supply an exact entry, stop or profit target.

What would confirm or weaken the utilities recovery?

Fund flows: does demand persist?Several weeks of inflows would be more persuasive than one positive week. ETF inflows suggest demand for fund exposure, but do not identify every buyer or prove long-term institutional conviction.

Relative strength: is XLU keeping up?Compare XLU with the S&P 500 over the same period. If utilities fall 1% while the index falls 3%, utilities have outperformed, but their investors have still lost money. Look for improving absolute prices as well as relative performance.

Breadth: are ordinary utilities participating?A recovery that includes traditional utility businesses is a stronger sector signal than a rally confined to a few nuclear or AI names.

Bond yields: can utilities withstand the headwind?Higher Treasury yields can make bonds more competitive with dividend-paying stocks and raise utility financing costs. Continued utilities strength despite elevated yields would be encouraging, though it would not prove AI demand was the sole cause.

I would become more constructive if inflows continued, participation stayed broad and pullbacks held above recent lows. Renewed outflows alongside price weakness would be a reason to reassess.

The useful lesson is to match the evidence with the commitment. An early sector improvement can justify closer monitoring or a carefully sized initial position. A compelling electricity-demand story still needs a sensible valuation, execution progress and a clear reason to exit if the investment case deteriorates.

This article is for educational purposes and does not constitute individualized investment advice. Trade and invest at your own risk.

This article was written by Itai Levitan at investinglive.com.