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Written by: Walt Czaicki
Much has been written about the AI trade and the related strong performance of technology stocks since ChatGPT arrived on the scene in 2022. And when examining the S&P 500 Index’s (S&P) returns over the last 10 years, and those of its component sectors, the technology sector deserves a word more provocative than “strong”! But there are other segments of the market that may continue to benefit from the current backdrop that often do not receive a commensurate level of attention.
Tech Stocks’ Dominance Supercharged by AI
Over the past decade, technology has been the undisputed leader in market returns, often giving the impression that it’s the only game in town (Display 1). And these stocks were provided an adrenaline shot courtesy of ChatGPT’s release in November 2022. The demand for so many things AI has led to the current arms race to build data centers—and to run data centers and so many other segments of the economy, you need power, and lots of it (Display 2).
Opportunities Beyond Tech
While data centers are currently expected to be the single largest draw on electrical demand (Display 3), onshoring trends, the Internet of Things and electrical transportation are additional key drivers that will comprise the bulk of incremental demand. This quest for power has led to a larger forecasted sales growth for electrical product manufacturers (Display 4) and larger-than-expected expected revenues for electric utility companies (Display 5).
Our View
As power demand accelerates, areas outside tech are sharing the spotlight. Rising forecasts for electrical product sales and infrastructure upgrades underscore their central role in powering the next wave of innovation. Independent utilities, operating in deregulated markets, are well-positioned to capitalize on rising power prices and abate the insatiable thirst for power that data centers increasingly demand. Meanwhile, regulated utilities are seeing increased capital investment in grid modernization and transmission infrastructure—investments that expand their rate base, enabling higher returns over time. While tech remains a core growth engine, the convergence of digital and physical infrastructure provides a wider and sound opportunity set.
Related: AI Boom or Bubble? Top Portfolio Managers Weigh the Truth Behind the Hype