The S&P 500 has seen a significant boost from artificial intelligence investments, outperforming the utilities sector by approximately 3.3 percentage points year-to-date. Analysts from Wells Fargo, led by Sharr Pourreza, noted that while the S&P 500 has risen 9.8%, utilities have only increased by 7.5%.
This underperformance is attributed to regulatory risks and a lack of investor focus on utilities' long-term potential linked to AI developments. The Federal Energy Regulatory Commission (FERC) is set to discuss the future of the PJM Interconnection, which could impact utility operations and costs.
Despite these challenges, Wells Fargo remains optimistic about utilities, suggesting that clarity from regulatory bodies could lead to a re-rating of utility stocks. They highlighted Exelon and FirstEnergy as potential beneficiaries, noting Exelon's strong earnings performance and FirstEnergy's growth in data center demand.
Both companies offer attractive dividend yields, with Exelon at 3.6% and FirstEnergy at 3.8%. Other utilities mentioned include PPL and Public Service Enterprise Group, which also have dividend yields but have shown mixed performance this year