These stocks in a 'sweet spot' are a better way to play AI than tech, says research firm

Alpine Macro's chief equity strategist, Nick Giorgi, identifies utilities as a prime investment for the artificial intelligence theme, driven by surging electricity demand from data centers, which is transforming the sector from a defensive bond proxy into a growth play. Utilities have already outperformed significantly, up over 17% year-to-date, making them the third best-performing S&P 500 sector. Giorgi advocates buying utilities over energy, citing lower execution risk than tech and reduced bust potential, with specific names like Vistra and PG&E projected for substantial gains, including a 35% rally expected for Vistra.

Analysis

Alpine Macro's chief equity strategist, Nick Giorgi, identifies the utilities sector as a prime investment opportunity for the artificial intelligence theme, positioning it as a structural growth play rather than a traditional defensive bond proxy. This shift is driven by massive electricity demand from data center buildouts, leading to a re-evaluation of the sector's value proposition within portfolios. Utilities have already demonstrated significant outperformance year-to-date, rallying over 17% and ranking as the third best-performing sector in the S&P 500, behind only information technology and communication services.

Giorgi emphasizes that utilities offer a more attractive risk-reward profile compared to technology, citing less execution risk, and a lower "bust potential" than energy. The sector's tailwinds, initially perceived as cyclical, are now recognized as secular, stemming from the electrification of the grid and a substantial need for capital investment. This structural evolution underpins a tactical recommendation to buy utilities and sell energy.

Specific opportunities within the sector include the Utilities Select Sector SPDR Fund (XLU) for broad exposure. Individual stocks like Vistra (VST) and PG&E (PCG) are highlighted, with Vistra projected to rally 35% over the next 12 months according to FactSet's mean price target. Other companies such as NRG, Edison (EIX), and Constellation Energy (CEG) are also forecast to see gains exceeding 15% in the coming year.

Key Decisions for Investors

• Consider increasing exposure to the utilities sector, potentially through ETFs like XLU, given its reclassification as a growth play driven by AI-related electricity demand and favorable risk profile.
• Evaluate individual utility stocks such as Vistra (VST) and PG&E (PCG) for potential significant upside, noting analyst price targets of 35% and >15% respectively.
• Assess reallocating capital from energy holdings into utilities, aligning with the strategist's tactical recommendation to capitalize on secular tailwinds and mitigate higher "bust potential" risks in energy.