Utility Stocks to Outperform Big Tech by 2025

Including dividends, utility stocks are currently the best-performing sector in the S&P 500 year-to-date.

Although artificial intelligence (AI) trading may be one of the dominant narratives in the current stock market, a ‘boring’ sector—utilities—has proven to outperform large-cap technology stocks in 2025.

According to Dow Jones Market Data, as of Tuesday’s close, the total return of the S&P 500 Utilities Sector Index (XX:SP500.55) year-to-date is 23.7%, with total returns including dividends.

This makes utilities the top-performing sector in the S&P 500 this year, surpassing the Communication Services sector’s return of 22.9% and the Information Technology sector’s 21.3%.

The performance of utility stocks has been particularly strong recently. In terms of returns alone, utilities ranked first among the 11 sectors of the S&P 500 over the past month and second over the past three months, trailing only the Communication Services sector, which is dominated by large-cap technology stocks, according to Dow Jones Market Data.

However, the success of this sector remains closely tied to the AI boom, with AI-driven data center construction significantly increasing electricity demand for training and operating new AI models.

“Investors are clearly excited about the growth potential of utilities amid the construction of data centers and the reshoring of manufacturing to the United States,” Travis Miller, senior energy and utilities analyst at Morningstar, told MarketWatch.

Utilities have historically been a ‘sleepy’ sector known for stable dividends and were even the worst-performing sector in the S&P 500 in 2023, with returns at the bottom of the index for the year. However, early in 2024, things began to change, with utility stock prices surging significantly.

Senior portfolio manager George Cipolloni noted that investors have discovered something long absent from this sector: a growth story.

Hyperscale companies such as Microsoft (MSFT.O) and Meta Platforms (META.O) are constructing new data centers to support AI technology, which has led to a sharp increase in electricity demand in some states. Cipolloni noted that in areas with dense data center construction, such as Virginia and Oregon, the share of electricity used by these facilities has risen significantly.

Electricity agreements like the one between Constellation Energy (CEG.O) and Microsoft (MSFT.O), announced last year, have prompted many investors to reassess the outlook for the utility sector. Forecasts released by investment banks and consulting firms indicate that energy demand will grow substantially in the coming years, Cipolloni added.

“It finally has a growth story,” said Cipolloni. “With the surge in AI capital expenditures, one of the biggest beneficiaries will be power generation and utility companies. We are already seeing this reflected in stock market returns and valuation expansion.”

Power generation companies such as Constellation Energy, Vistra Energy (VST.N), NRG Energy (NRG.N), and Talen Energy (TLN.O) have seen strong stock performance this year, as they typically benefit from rising electricity demand and favorable commodity prices.

Miller explained that these companies purchase commodities like natural gas or uranium as energy sources for power generation and then sell the electricity to customers. As a result, they stand to profit from rising electricity prices.

According to official U.S. inflation data, the electricity price index rose by 6.2% over the 12 months ending in August, significantly higher than the overall consumer price index increase of 2.9%. Government data shows that in August 2025, electricity prices for urban consumers in the U.S. reached a record high of 19 cents per kilowatt-hour.

However, these power generation companies differ from traditional large regulated utilities, which have also experienced significant growth. Companies like Constellation Energy enjoy greater flexibility in negotiating deals with large tech firms, making them more profitable amid the ongoing expansion of data centers.

“If data center construction proceeds as expected, this will represent the largest increase in electricity demand in decades,” Miller noted.

The rise in utility stocks has also driven up the sector’s price-to-earnings (P/E) ratio. As of Tuesday, the P/E ratio reached 19.6, the highest level since the bull market began in October 2022, according to Dow Jones Market Data.

The rise in utility valuations has been partly supported by earnings growth. According to John Butters at FactSet, year-over-year earnings growth for the sector has improved from -22.3% in the first quarter of 2023 to an estimated +14.7% in the fourth quarter of 2026 since the start of the bull market.

However, not all utility companies have seen gains this year. Some green energy firms were hit by President Trump’s decision to eliminate tax incentives for wind and solar projects.

Utility stocks are generally regarded as relatively safe investment options, suitable for investors unwilling to take on high risk. This is because consumer demand for electricity tends to remain stable regardless of economic conditions. Even during a recession, people still need electricity to maintain daily life.

“Utility companies benefit from regulated revenue streams, a mechanism that acts as a buffer during economic shocks,” said John Murillo, Chief Commercial Officer at B2Broker, in an email.

Murillo noted that over the past three years, the utility sector’s annualized volatility has been approximately 18%, significantly lower than the broader market’s overall volatility. He suggested that investors concerned about inflation trends allocate around 20% to utility stocks, alongside 40% in consumer goods stocks and 30% in healthcare stocks.

Despite Murillo’s recommendation to increase allocations, utility stocks remain underrepresented in the S&P 500. As of Tuesday’s close, the utility sector accounted for only 2.5% of the S&P 500, while the technology and financial sectors held weights of 34.7% and 13.5%, respectively, making them the two largest sectors, according to FactSet data.

According to calculations by Matt Cerminaro, co-founder of Exhibit A for Advice, a financial advisor chart platform, as of Tuesday’s close, the utility sector contributed only 0.5% to the S&P 500’s year-to-date gain of 14.1%.