Utilities — not tech — are in the "sweet spot" to play the artificial intelligence theme. "Utilities are in the early stages of a structural evolution away from slower growth and higher yields towards faster growth and capital redeployment," Nick Giorgi, chief equity strategist at Alpine Macro, wrote on Wednesday. "The sector is neatly aligned to secular Tech drivers but with less execution risk." "This shifts the value proposition of the sector, and its utility within portfolios, from a heavy defensive bond proxy towards a core holding," he continued. XLU YTD mountain S & P 500 Utilities, YTD performance Utilities are already outperforming the market year to date, given the massive demand for electricity tied to the data center buildout. It's the third best-performing sector in the S & P 500, rallying more than 17%, behind just information technology and communication services. However, even those gains fall short of the sector's upside potential, Giorgi said. Utilities, which are traditionally defensive plays given their predictable, stable cash flows, are starting to act like growth stocks because of the secular theme of the electrification of the grid. "Last June we initiated a tactical add of Utilities as the sector had entered the sweet spot of rising demand, a major need for capital-investment, and inflation moving lower," Giorgi wrote. "We'd since closed out that trade, to a tidy profit, but now recognize that the tailwinds powering Utilities were less cyclical and more secular." That makes the sector more appealing than tech or even energy, as utilities do not have the same "bust potential" as the the latter, according to the strategist. Indeed, he has a tactical recommendation for traders to buy utilities and sell energy. The Utilities Select Sector SPDR Fund (XLU) is broad way to play the group. Vistra and PG & E are among the favorite stocks in that ETF from Wall Street. Vistra is expected to rally 35% over the next 12 months, according to the mean price target on Wall Street collected by FactSet. PG & E, NRG , Edison and Constellation Energy are all forecast to see gains greater than 15% over the next one year.
