Artificial intelligence will require a staggering amount of power in the coming years. According to the International Energy Agency, power demand by data centers will more than double by 2030 to 945 terawatt-hours. That's slightly more than all the power currently used in Japan.
The coming AI power surge will benefit many companies. The Utilities Select Sector SPDR Fund (XLU 0.46%), Brookfield Renewable (BEPC 2.13%) (BEP 2.62%), and NRG Energy (NRG -0.67%) stand out to a few Fool.com contributing analysts as the top ways to cash in on the boom. Here's why they're compelling ways to play the AI power boom.
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If you see the big picture, invest with a big-picture approach
Reuben Gregg Brewer (The Utilities Select Sector SPDR Fund): The writing is on the wall: Demand for electricity in the United States is going to see a step change. Between 2000 and 2020, electricity demand increased 9%. Between 2020 and 2040 demand is expected to rise by 55%! That's a huge opportunity across the country, and one of the best ways to take advantage, from a big-picture perspective, is to buy all of the largest and most economically important utilities. Luckily for investors, there's an exchange-traded fund (ETF) for that called the Utilities Select Sector SPDR Fund.
The Utilities Select Sector SPDR Fund effectively buys all of the utilities in the S&P 500 Index (SNPINDEX: ^GSPC). The S&P 500 is a hand-selected group of companies that, as a group, are meant to be representative of the U.S. economy as a whole. Thus, the Utilities Select Sector SPDR Fund owns the most important U.S. utilities, including NextEra Energy, Southern Company, Duke Energy, and Dominion Energy. Every utility in the ETF isn't going to be a big winner. But overall, you'll almost certainly participate in the story in a big way and you won't have to worry about picking individual stocks. The committee overseeing the S&P 500 has done that work for you.
The expense ratio is a very reasonable 0.08%. The dividend yield is a respectable 2.6%, well more than twice the yield of the S&P 500. This ETF is simple, cost-effective, and right on target, with more than 90% of assets tied to companies that provide the United States with electricity. What more could you ask for?
AI's power partner of choice
Matt DiLallo (Brookfield Renewable): Brookfield Renewable is one of the world's leading clean power producers. It's becoming a partner of choice for companies seeking electricity to power their AI ambitions.
The company recently inked a deal to provide Alphabet subsidiary Google with up to 3 gigawatts (GW) of carbon-free hydroelectricity in the coming years to power its operations, including AI needs. This is the largest ever deal for hydropower, highlighting rising demand among tech giants for reliable clean energy. It enabled Brookfield to secure a long-term buyer for the bulk of its U.S. hydropower at an attractive rate.
Before that, Brookfield signed the largest single corporate power purchase agreement with Microsoft. At 10.5 GW, it was eight times larger than the prior record, highlighting Brookfield's industry leadership and its commitment to delivering the transformational renewable energy needed for the future of AI and cloud computing. Brookfield will deliver this power by building significant new renewable capacity between 2026 and 2030, specifically to power cutting-edge digital growth. The company also supplies power to leading AI-focused tech titans Amazon and Meta Platforms.
These deals support Brookfield's robust growth outlook. The company expects double-digit annual funds from operations-per-share growth, which will easily cover its plans to boost its 4.5%-yielding dividend by 5% to 9% annually. That growth and income could power strong total returns for investors in the coming years.
Huge AI data center opportunities
Neha Chamaria (NRG Energy): One of the key messages from NRG Energy's recent earnings call was the ongoing structural shift in the power sector. The electric and gas utility believes we are at the start of a "power demand super cycle" driven by electrification and the rapid growth in AI and data centers.
To exploit opportunities, NRG Energy is prioritizing sites that are ideal for hyperscalers, is actively engaged in discussions with data center firms for long-term power supply contracts, and believes these sites can support up to 15 GW of data center demand.
Earlier this year, NRG Energy also partnered with GE Vernova and a subsidiary of Kiewit to form a joint venture. They will jointly develop over 5 GW of natural gas power plants to serve the Ercot wholesale market in Texas and the PJM Interconnection wholesale market. Texas, a significant data center hub, is also NRG Energy's largest market.
Its foothold in Texas alone places NRG Energy right at the center of the AI power boom. That's one of the reasons the company expects to grow its adjusted earnings per share by a compound annual growth rate of over 10% through 2029. That's just its projected organic growth, though, and any acquisitions in between should drive NRG Energy's earnings even higher. NRG Energy is also targeting 7% to 9% annual dividend growth, all of which combined should continue to drive its share price higher, offering investors an intriguing opportunity to cash in on the AI boom.
