In the Spotlight Trends of the Month
Utilities stocks have historically been viewed as defensive, low-growth investments. So, they’re often overlooked by investors. Today, however, things are changing in this sector. Amid the rise of artificial intelligence (AI), many utilities companies are seeing major growth opportunities.
At the heart of artificial intelligence lie data centres (these are essentially the computational brains behind groundbreaking AI applications such as ChatGPT). These data centres are consuming vast amounts of energy today as the complexity and scale of AI models continue to grow. According to the Electric Power Research Institute (EPRI), generative AI applications such as ChatGPT and Google’s Gemini can require 10 times or more the electricity of traditional Internet searches.
So, the electricity industry (a major part of the utilities sector) looks set to play a pivotal role in the AI revolution in the years ahead.
Now, this industry can be broken down into three main segments. The first is electricity generation. Here, companies such as NextEra Energy, Duke Energy, and Exelon Corporation produce electrical power from various energy sources. It’s worth noting that all three of these companies are active in the renewable energy space because clean energy offers a more sustainable and reliable source of electricity (NextEra is actually the world’s largest producer of wind and solar energy).
The second is transmission. This involves the high-voltage transportation of electricity from power plants to substations. Here, companies such as American Electric Power and PG&E Corporation are key players. American Electric Power, for example, operates one of the largest transmission networks in the US, managing over 40,000 miles of transmission lines.
Finally, there’s the distribution segment. This is the final step in the electricity supply chain and involves the delivery of electricity from substations to end consumers. Here, companies such as Consolidated Edison and Eversource Energy are major players. These companies deliver electricity to millions of homes and businesses across the US, including the data centres that power artificial intelligence.
Looking ahead, all three segments of the US electricity market appear well placed to benefit from the growth of AI (and other technologies such as cloud computing and crypto mining that rely on data centres). That is because vast amounts of energy are required to power servers and maintain optimal conditions within data centres. According to Goldman Sachs, data centre power demand could be set to increase at an annualised rate of 15% between 2023 and 2030. Meanwhile, data centre electricity demand could represent nearly 10% of total US electricity generation by 2030, according to The Electric Power Research Institute (EPRI).
Some areas of the US are already experiencing particular high demand for electricity due to the data centre buildout. Virginia, which has become a hotspot for data centre development (it’s often referred to as "Data Center Alley") is a good example. Here, Dominion Energy, the state’s largest utility, has said that new natural gas plants will be needed to meet rapidly increasing electricity demand. Dominion’s 2023 annual report said that data centres represented 24% of subsidiary’s Virginia Power’s electricity sales in 2023, up from 21% in 2022.
It’s worth pointing out that lower interest rates in the years ahead should provide extra tailwinds for US electricity companies. That’s because utilities companies tend to carry a lot of debt on their balance sheets. This is largely due to the capital-intensive nature of the industry, where building and maintaining infrastructure such as power plants, transmission lines, and distribution networks requires substantial upfront investment. When interest rates fall, borrowing costs for these firms are reduced, increasing profitability. Lower rates also enable these companies to finance more large-scale infrastructure projects, including grid modernisation and renewable energy expansion.
In summary, by investing in companies across the generation, transmission, and distribution sectors of the electricity industry, investors can potentially tap into a market that not only offers reliable returns, but also stands at the forefront of technological advancements. Amid the rapid growth of AI, the sector presents a unique opportunity.
Those interested in gaining portfolio exposure to the US electricity industry may wish to check out eToro’s Utilities Smart Portfolio. Designed for long-term investors, this portfolio provides exposure to a number of utilities companies playing a role in the AI revolution including NextEra Energy, Duke Energy, and Dominion Energy.
During the coronavirus pandemic, working from home became the norm for many of us. At the time, the majority of companies were happy to let employees work on a fully remote basis five days a week as this was safer for everybody. Fast forward to today and employers’ attitudes are shifting. But the landscape for employees is still very different to the pre-Covid days.
Today, there is no longer a universal, “one-size-fits-all” approach to the workplace.
Some companies want all of their employees back in the office five days a week, some are opting for a fully remote model, and some are happy to operate a hybrid model whereby employees can work from home a few days per week. What’s clear, however, is that for employees, the ability to be able to work from home or remotely, at least some of the time, is extremely important. Ultimately, the pandemic has changed employee expectations, with many now prioritising flexible work arrangements.
Studies have shown that hybrid working makes employees happier, healthier, and more productive.
This can all be attributed to the fact that it tends to lead to a better work-life balance. One recent study in the UK found that employees reported feeling less drained, less stressed, and less anxious as a result of spending a few days per week away from the office. Less time commuting, more time with families, and extra time for relaxation and exercise, were some of the main reasons. Given the benefits of a hybrid work arrangement, it’s the most in-demand benefit that people are looking for before taking a job today. Many employees are actually willing to pass up job offers if there is no option for flexible working. One study in Ireland found that nearly half of Irish job seekers would refuse a job offer if there were no hybrid or fully remote working options offered. So, for businesses, hybrid work arrangements can be a major factor in attracting and retaining top talent.
For some segments of the population, the ability to work from home is crucial.
Mothers with young children are a good example here. Remote work allows mothers to balance their professional responsibilities with their childcare commitments. Having some flexibility in terms of working arrangements can be very beneficial when it comes to things like school/kindergarten pick up and drop off, doctors’ appointments for children, and managing household tasks.
The ability to work remotely can also be very important for those with disabilities who are unable to commute. By eliminating the need to drive, or take the train, or bus to work, more of these individuals can potentially join the workforce. In the past three years, people with disabilities have entered the US workforce at record levels. In the first quarter of 2024, the share of US disabled employees who were fully remote was 12.6%, compared with 10.6% of employees with no disability, according to the Economic Innovation Group.
It’s worth pointing out that the shift to hybrid work is having an impact on various areas of the global economy.
For example, affluent Americans with the flexibility to work remotely have been snapping up homes in the south of France, sparking a surge in property prices in a region known for its stunning beaches and expensive yachts. The rise of remote work has also made Spain an attractive destination for digital nomads and those seeking a more flexible lifestyle. Spain is one of the 40 or so countries that are today offering a “Digital Nomad Visa” and a recent report by Global Citizen Solutions found that the country is the best place to work remotely due to its low cost of living, attractive tax landscape, and thriving tech ecosystem.
One well-known company that is benefitting from the remote work trend is Airbnb.
In recent years, the rise of this style of work has created a new category of travellers seeking flexible living arrangements. And Airbnb's platform, which offers a range of accommodation options including apartments and entire homes, has become a popular choice for these travellers. Thanks to Airbnb, people can literally work from anywhere in the world.
Looking ahead, remote work is likely to be a lasting feature of the workplace landscape. And it could create plenty of opportunities for investors. Those interested in gaining portfolio exposure to the work-from-home theme may wish to take a look at eToro’s RemoteWork Smart Portfolio. Designed for long-term investors, this strategy offers exposure to the technology companies that are powering the work-from-home revolution.
