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Artificial intelligence enthusiasts on Wall Street are broadening their horizons.
The S&P 500's utilities sector has risen 14% this year, making it the third-best performing sector behind information technology and communications services. The sector also outpaced the benchmark index's 11% rise. Vistra stock has soared 152% this year, Constellation Energy stock is up 91% and NRG Energy stock is up 63%.
This is a reversal from the sector's weak earnings last year. Utilities fell more than 10% in 2023, lagging the S&P 500's 24% rise as investors betting on the artificial intelligence boom flocked to the Magnificent Seven's big tech stocks. Wall Street also moved away from high-dividend stocks, many of them utilities, as high interest rates made bond yields look the most attractive they've been in years.
This year, the strategy has changed. Cracks have appeared in the market leadership of major tech companies. At the same time, investors are looking for cheaper alternatives to the Magnificent Seven, whose valuation reached lofty levels after last year's monster tech-driven stock rally.
Enter Utility. These stocks are typically viewed as a defensive strategy because during tough economic times, people tend to prioritize paying for necessities like electricity over discretionary purchases. But investors are betting this year that utilities will hold the key to building and operating the infrastructure needed to service AI.
The utilities sector currently trades at about 17 times expected earnings over the next 12 months, lower than the S&P 500's about 21 times and the information technology sector's about 28 times.
“Investors are now on the offensive with utilities,” Bespoke Investment Group researchers wrote in a note Monday. “Running AI requires a lot of electricity, and combined with the demands[of electric vehicles]and modern heating and cooling needs, the current power grid seems woefully inadequate.”
According to the International Energy Agency, a Google search requires an average of 0.3 watt-hours of power, while a ChatGPT request typically consumes about 2.9 watt-hours. Considering there are approximately 9 billion searches per day, if search engines were to fully implement AI, they would require nearly 10 terawatt-hours of additional power per year. The agency predicts that AI-related electricity demand will increase at least tenfold by 2026.
Additionally, the defensive nature of utility stocks was appealing to investors worried that the Federal Reserve would keep interest rates on hold after a spate of warm inflation data. April's consumer price index shows prices cooled last month, but investors expect the Fed to start cutting interest rates as early as September.
To be sure, not everyone is jumping into utility stocks. Adam Turnquist, chief technical strategist at LPL Financial, said the firm recognizes there is room for further upside in the sector, but remains neutral.
“Utilities' growth trajectory is not comparable to AI poster children such as Nvidia and Super Micro Computer,” Turnquist wrote in a May 9 note.
2024 got off to a strong start, with inflation calming down in April, bringing some hope to Americans weary of high prices, my colleague Alicia Wallace reports.
Consumer prices rose 3.4% in the 12 months ending in April, slowing from a 3.5% rise the previous month, according to the latest Consumer Price Index report released Wednesday by the Department of Labor's Bureau of Labor Statistics.
On a monthly basis, prices rose 0.3%, slower than the 0.4% growth in the previous two months.
Economists had expected sales to rise 0.4% month over month and 3.4% annually, according to FactSet consensus estimates.
Rising gasoline and shelter costs accounted for more than 70% of the overall monthly inflation increase, according to the report.
While rising housing costs and high prices continue to weigh on Americans, Wednesday's report provided some welcome news on another major spending area. Food prices fell for the first time in a year, down 0.2% from March.
Closely monitored fundamental measures of inflation showed further progress. Core CPI, which excludes the more volatile energy and food categories, slowed to 3.6% from 3.8%, the lowest level since April 2021.
Compared to the previous month, core CPI rose 0.3%, the slowest pace since the end of last year.
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Barclays estimates that Taylor Swift's smash hit 'Ellas Tour' is expected to increase spending in the UK by nearly $1 billion.
The British bank said in a report on Wednesday that it expects nearly 1.2 million Swifties to attend the superstar's shows in Britain this summer, with typical fans paying for travel, accommodation and other expenses. They are expected to spend 642 pounds (about 81,000 yen), totaling 755 million pounds ($953 million) into the economy.
This is just the latest example of “Swiftonomics.” My colleague Anna Cuban reports on the musician's ability to influence the economies of the cities and countries he visits on his massive world tour, which began in the United States last March.
According to Barclays, based on estimates based on customer transaction data and its own consumer research, fans will spend £121 ($153) on accommodation, £111 ($140) on travel and £59 ($140) on restaurants near the venue. They are likely to pay $74.
Swift will perform 15 shows in four UK cities across England, Wales and Scotland in June and August. Barclays said the concert sold out within minutes of tickets going on sale, with fans spending an average of £206 for each ticket.
Barclays research shows UK concertgoers spend an average of £848 per person including ticket costs, more than 12 times the average cost of a night in the UK. corresponds to
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