Utilities, the Original Tech Stocks, Are Back!

The philosopher Nietzsche developed the concept of “eternal recurrence,” or that our lives will repeat infinitely. A look at the utilities sector might bear out the truth of this. Electric utilities were once the sexy technology stocks of the investment world preceding the 1929 stock market crash. They then evolved into boring, dividend-paying, “orphan-and-widow” stocks for decades. And now they’re hot once again.

Utilities have had a torrid rally for the past three months through June 5. A combination of more subdued inflation and the hope that the AI revolution and migration to electric vehicles will spur more electricity usage has powered the 12 ETFs that fall in Morningstar’s Utilities fund category.

AI & EVs Driving Electricity Usage

Demand for Nvidia’s chips for AI applications seems unlimited, and the stock is up more than 100% for the year and a staggering 50% annualized on a 15-year basis. Also, sales of electric vehicles have gone from 54,000 in 2015 to nearly 1.1 million in 2023, according to data from Edmunds, while zero-emissions car sales must be 100% in nine states, including California, by 2035.

On average, the utilities ETFs are up 12.5%, with the category’s big Kahuna, the $14 billion Utilities Select Sector SPDR ETF (XLU), up 15.1% through June 5. Overall, the 12 ETFs have $24 billion in assets, with the second-largest fund, the Vanguard Utilities ETF (VPU), claiming $6.6 billion of the total.

To put those returns in perspective, the funds are up 9.8% on average for the year, while XLU is up 13.7%. So they were down for the year until they began their run three months ago.