Goldman Sachs remains bullish on the S&P 500 Utilities sector, indicating that it offers exposure to artificial intelligence and defensiveness.
Utilities has been the third-best performing of the 11 S&P sectors this year, delivering investors with returns of nearly 11% YTD. Its accompanying Utilities Select Sector SPDR Fund ETF (NYSEARCA:XLU) has done even better, advancing more than 11%.
One of the primary drivers of the sector’s recent outperformance is the growing perception that it has become an artificial intelligence (AI) play. With AI expected to drive a 160% increase in data center power demand by the end of this decade, utilities are expected to benefit in a big way.
“From a macro perspective, Utilities also offers defensive exposure at a time when equities are pricing roughly 3.5% real GDP growth,” Goldman Sachs said in an investor note on Wednesday.
The financial firm went on to say, “Utilities expected earnings growth is only modestly above the historical realized earnings growth in the sector… Our equity analysts remain above consensus on 2026 EPS, suggesting potential for continued positive EPS revisions to consensus estimates.”
Within the utility space, the dispersion of returns has been quite wide, with market participants mainly focusing on names that can benefit from near-term growth in power demand, according to Goldman Sachs. This dispersion creates a fertile stock picking opportunity base, and Goldman Sachs’ equity analysts have placed buy ratings on eight names.
The eight stocks Goldman Sachs has buy ratings on include: The Southern Company (NYSE:SO), American Electric Power Company (NASDAQ:AEP), Eversource Energy (ES), First Industrial Realty Trust (FR), NextEra Energy (NYSE:NEE), PG&E Corporation (PCG), Sempra (SRE), and Xcel Energy (XEL).
For further information on the Utilities sector, highlighted below are some of Wall Street’s most popular ETFs focused on the utilities space.
- Utilities Select Sector SPDR Fund (XLU)
- Vanguard Utilities ETF (VPU)
- Fidelity MSCI Utilities Index ETF (FUTY)
- iShares U.S. Utilities ETF (IDU)
Source: seekingalpha.com
