The Overlooked Utility Sector Play in the AI Infrastructure Boom

The artificial intelligence revolution is reshaping global energy consumption, with data centers emerging as the new industrial giants of the 21st century. As of 2024, U.S. data centers alone consumed 183 terawatt-hours (TWh) of electricity-equivalent to 4% of the nation's total electricity use-and this figure is projected to surge by 133% by 2030, reaching 426 TWh, according to a Pew Research Center analysis. This exponential growth, driven by hyperscale facilities optimized for AI workloads, is creating a seismic shift in utility sector demand. Yet while investors scramble to bet on AI's "stars" like chipmakers and cloud providers, one overlooked beneficiary remains: the utility sector. Specifically, the Vanguard Utilities ETF (VPU) offers a compelling, diversified, and high-dividend pathway to capitalize on this energy-driven megatrend.

The Energy Appetite of AI: A New Era for Power Demand

AI infrastructure is uniquely energy-intensive. Hyperscale data centers, which house advanced servers for AI training and inference, consume electricity at a rate comparable to small cities. A single AI-focused facility now uses as much power as 100,000 households annually, with larger installations projected to reach 20 times that level, according to the Pew Research Center analysis. Cooling systems alone account for 7% to 30% of energy use, depending on facility efficiency, compounding the strain on regional grids, according to the Pew Research Center analysis.

Goldman Sachs Research underscores the urgency: global data center power demand is expected to rise by 50% by 2027 and 165% by 2030 compared to 2023 levels, according to a Goldman Sachs report. AI's share of this demand is already 14% and will likely double to 27% by 2027 as large language models and generative AI workflows scale, according to the Goldman Sachs report. This surge will require $720 billion in grid infrastructure investments through 2030 to meet the growing load, according to the Goldman Sachs report. For utilities, this represents a long-term tailwind-regardless of whether the AI boom accelerates or moderates.

VPU: A Defensive Play on a Structural Trend

The Vanguard Utilities ETF (VPU) provides broad exposure to the utility sector, with a focus on high-dividend, low-volatility stocks. As of December 2024, VPU declared a quarterly dividend of $1.275 per share, translating to a forward yield of approximately 3.5%-a compelling figure in a market where many tech stocks offer no dividends, according to a Seeking Alpha report. This consistency is critical for investors seeking resilience amid economic uncertainty.

While VPU's holdings are not explicitly tied to AI infrastructure, the ETF's exposure to regional and national utilities positions it to benefit from the structural increase in power demand. For example, utilities serving data center hubs like northern Virginia (which allocates 26% of its electricity to data centers) or Texas (a growing AI infrastructure hotspot) will see rising revenues as demand outpaces population growth, according to the Pew Research Center analysis. Even if AI adoption slows, the broader trend of electrification-spanning EVs, manufacturing, and residential use-ensures a floor for utility earnings, according to the Pew Research Center analysis.

Historical Parallels and the Resilience of Utilities

The utility sector's role in technological transitions is not new. During the dot-com boom of the 1990s, utilities quietly profited from the surge in data center construction and internet infrastructure. Similarly, the rise of cloud computing in the 2010s drove a decade-long expansion in utility demand, with companies like Dominion Energy and NextEra Energy benefiting from long-term power purchase agreements, according to the Pew Research Center analysis. Today's AI-driven energy boom is a repeat of this pattern, but on a far larger scale.

Moreover, utilities are inherently defensive. They are regulated, cash-flow stable, and less susceptible to the volatility of tech stocks. As AI infrastructure demand grows, utilities will act as the "grid" connecting innovation to the real economy-a role that is both essential and underappreciated.

Conclusion: A Win-Win for Long-Term Investors

For investors seeking to profit from AI's energy demands without overexposing themselves to tech sector volatility, VPU offers a unique combination of diversification, income, and long-term growth potential. While the ETF's holdings may not include AI-specific companies, the structural increase in power demand ensures that utilities will remain a foundational beneficiary of the AI revolution. As the grid expands to meet the needs of tomorrow's AI infrastructure, VPU stands as a quiet but powerful play on a megatrend that no one can ignore.