Recently, while US chip stocks are falling, utility stocks have bucked the trend.

The US Public Utility Select Industry ETF (code XLU) surged 4% in the past 5 trading days, breaking through the $74 mark in one fell swoop. The utilities sector is likely to usher in spring.

Over the past two years, due to market concerns about continued inflation, the Federal Reserve kept interest rates at a high level after continuing to raise interest rates, and the yield on 10-year US Treasury bonds remained above 4% for most of the time.

According to FactSet data, the average yield of utility stocks during this period was 3.4%, and dividend income was not as good as treasury bonds, which put pressure on utility stocks that rely on stable dividends.

XLU also failed to break through the $72 mark, while major US indices achieved double-digit growth during the same period.

However, starting last week, the situation may be reversed. At a time when technology stocks such as Mag 7 are generally falling, the utility ETF XLU bucked the trend and broke through key points, indicating that investors are more confident in the environment for holding utility stocks.

The US economic slowdown and AI fever triggered a surge in electricity demand, turning the US stock utility sector around

Some analysts pointed out that factors driving this change include weak US macroeconomic data and a surge in electricity demand caused by AI fever.

On the macroeconomic side, US non-farm payrolls weakened in July, and the unemployment rate gradually rose. Combined with the July ISM manufacturing PMI data falling short of expectations, concerns about the US recession heated up. The market generally bet that the Federal Reserve would cut interest rates in September and 10-year treasury yields fell to about 3.8%, which made dividend returns on utility stocks more attractive.

On the other hand, the surge in electricity demand caused by the AI craze has also boosted the rise in US utility stocks.

Last Tuesday, electricity prices soared to $269.92 per megawatt per day at an electricity market auction held by PJM, the largest power grid operator in the US, up more than 800% from a year ago, while also breaking the 2010 record of 174.11 US dollars/megawatt.

The stock price of Vistra, one of the largest power companies in the US, once rose by more than 15% after the news.

Goldman Sachs warns that grid stability requires more power capacity. However, any new grid expansion may take years to go online, which basically means that electricity prices will remain high for a period of time.

As a result, three utility companies, including Vistra, Constellation Energy, and NRG Energy, have taken advantage of the sharp rise in electricity prices to become one of the 10 best performing companies in the S&P 500 index.

More importantly, compared to buying higher-priced tech stocks such as Nvidia, Microsoft, and Google, investors can now participate in the AI boom by buying utility stocks at relatively low prices.

Jay Jacobs, head of active ETFs at BlackRock, said investors are expected to continue investing in utility stocks or related ETFs for at least this year as investors look for artificial intelligence opportunities outside of big tech stocks.

Investors have looked beyond Mag 7 and are waiting for the next opportunity. With large technology companies such as Microsoft and Google investing billions of dollars in AI data centers to supply power for corresponding AI devices and the rise of new energy vehicles, the rise of utility stocks came to fruition.

Churchill's president Randy Conner also said, “Utilities have become our industry of choice.” Maybe it's time to enjoy the honeymoon period that utility stocks bring.