Just like modern alchemy, everything touched by ai seems to turn into gold, including the once dormant electrical utilities sector. However, there is a divergence among analysts on whether the brilliance of these stocks still shines.

Over the past year, the Utilities Select Sector SPDR Exchange Traded Fund (ETF) $Utilities Select Sector SPDR Fund (XLU.US)$ has surged nearly 44%, meaning that large utility companies have enjoyed their best 12-month performance since the beginning of this century.

The decline in interest rates is one of the reasons, as it attracts income-seeking investors to invest in high dividend stocks such as utility companies. However, as pointed out by Nicholas Colas of DataTrek Research, there must be other reasons for such outstanding performance. This is where ai comes in: given its huge energy demand, technology companies are partnering with energy suppliers, making utilities a new and cheaper way to participate in this revolution.

In fact, data centers have been consuming a significant amount of national electricity supply: according to data compiled by Apollo Global Management, they have already consumed over 10% of the electricity supply in six states, with the proportion reaching as high as 26% in Virginia.

Many analysts believe that this trend will continue, as there are no signs of ai slowing down.

Guggenheim's Shahriar Pradhan recently significantly raised the target prices of several utility companies he covers, including $Vistra Energy (VST.US)$N/A.$Talen Energy (TLN.US)$,$NRG Energy (NRG.US)$And.$Constellation Energy (CEG.US)$The latter has agreed to use its Three Mile Island nuclear power plant for$Microsoft (MSFT.US)$Providing electrical utilities - all of this is the conclusion reached after recent discussions with management.

"We have brought back an optimistic understanding of the industry fundamentals and thematic catalysts from this survey," he wrote, "These factors have sustainably boosted valuations."

In his view, DataTrek's Colas wrote that although he is usually cautious about a rapidly strong rebounding industry, there are still reasons to be optimistic that the industry can continue to rise. "The story of generative artificial intelligence should have further room for development, and to achieve this development, this technology requires a large amount of additional electrical utilities production," he said. "Utilities may not be the best-performing industry in the next 12 months, but it should continue to outperform other industries."

However, rapid running often leads to stumbling, even with subsequent recovery.

BTIG's Jonathan Krinsky expects utilities to correct by 7% to 10%. The industry seems to be 'historically overvalued,' with charts showing the need for a pullback: the Dow Jones Utility Index has risen above its 200-day moving average by 16%, a level that has occurred 18 times since 1950. He points out that from this peak, the median return approximately 40 days later is -4.6%, only three times above this level.

SentimenTrader's Jason Goepfert also noted the difficulties utilities face in maintaining significant momentum: "When it deviates too far from the 200-day moving average, in the next 2 to 3 months, utilities often show a strong trend of pullback, with poor return performance, unattractive risk-to-reward profile, and unattractiveness for late buyers."

Of course, if the market remains optimistic about the expansion of datacenter demand, these setbacks may be overcome. However, Goepfert pointed out that this may be more difficult to achieve than some people expect.

"The biggest obstacle for call options buyers - as it has been for the past 70 years - is that stable industries like utilities often respond poorly to periods of high positive momentum," he said. "Finding new investors willing to buy into fast-growing expectations in an industry known for dividends is not easy. This is why the new narrative about artificial intelligence is so important for this industry, as any cracks in this regard should quickly lead to a reassessment of future returns."

In short, the benefits brought by artificial intelligence could also be taken away. Utilities may provide electrical utilities, but they cannot control the trajectory of their own stocks.

Editor/Emily