Tech leaders like Nvidia and Meta might be dominating the headlines, but they aren’t the top market performers. The real winner? Utilities. Known for being rock-solid during tough economic times, American utility stocks are quietly delivering the biggest returns in portfolios.

A portfolio with utility: Moving electricity, water, and gas from point A to point B isn’t the sexiest business, but for investors seeking stability, it’s gained traction this year. The Utilities Select Sector SPDR FundXLU

is currently the best-performing sector in the S&P 500 — surpassing even tech and communication services’ beefy returns. This strength comes despite concerns over the economy, backed by solid earnings and AI-driven interest in power.

• FactSet reports that essential service providers have led S&P 500 earnings growth, rising 21% year-over-year (YoY).
• Investors looking for safety during market downturns are turning to utilities alongside traditional defensive picks like real estate, consumer staples, and gold.

Power Play

While economic conditions have played a big role in investors’ buying decisions, the growing power needs of the tech sector are also boosting utilities. NextEra EnergyNEE

CEO John Ketchum expects renewable energy demand to “triple” in the coming years, fueled by AI demand — sparking a new electricity bull market.

• Power companies like NextEra, ConstellationCEG
  , and SouthernSO
  have flirted with offering services to AI companies, with their stocks rising 36%, 65%, and 25% YTD on investor excitement.
• FactSet notes that independent power and renewable energy producers — now popular with cognitive computing companies — saw the largest year-over-year earnings growth at 45%.

This time is different? Utilities are often considered a recession-proof play, and they’re on track for double-digit gains in an otherwise sound market. Historically, the utilities sector has only been the S&P’s top performer in three years — 1977, 2000, and 2011 — each time during a broader market decline. But in 2024, with both service providers and the broader market on the rise, things could be different. Whether it’s AI demand, a shaky economy, or shifting investor preferences, utilities could be on the verge of making history.