If a poll asked investors to rank the 11 S&P 500 sectors in order of excitement, there's an excellent chance that technology would take one of the top spots, while utilities would be toward the bottom, if not in the cellar.
That's an old-school way of looking at things. Thanks to the evolution of artificial intelligence (AI), utility stocks have more pizazz than market participants typically ascribe to the sector, providing an interesting refresh for exchange-traded funds (ETFs) such as the Vanguard Utilities ETF (VPU 0.71%).
This Vanguard ETF is a backdoor AI play. Image source: Getty Images.
This $9 billion ETF should not be confused with a traditional tech fund or one dedicated to the broader AI investment thesis. Still, with this disruptive technology stoking exponential increases in power demand, the Vanguard fund is an interesting option for investors seeking some non-tech AI exposure.
Turning the AI lights on with VPU
As one of the largest ETFs in the category, this Vanguard fund allocates 62.4% of its portfolio to electric utility stocks, which is relevant because saying AI has power demands is an understatement. Data centers consume massive amounts of power.
Quantifying the power demands created by AI and cloud computing data centers isn't difficult. Last year, these facilities consumed a staggering 448 trillion watt-hours of electricity worldwide, exceeding the power consumption of all but 10 countries. That's a lot of power, and the portion consumed in the U.S. points to an opportunity with sector funds, including this Vanguard ETF.
A May report published by the Energy Information Administration (EIA) underscores the AI-related opportunity with this ETF. The EIA notes that 2026 power consumption will top last year's level, and that feat will be repeated next year. Of note to investors considering utilities exposure is that, in 2027, commercial power consumption will top residential consumption for the first time. Yes, that's an "AI thing."
NYSEMKT: VPU
Key Data Points
Whether that makes this fund one of the best Vanguard ETFs remains to be seen. But with AI fostering new demand and with residential electricity prices unfortunately expected to rise this year and in 2027, this utilities ETF has the opportunity to deliver more growth than investors are expecting.
Demystifying this Vanguard ETF
These days, there's plenty of AI enthusiasm to go around, but it can also create some confusion. Let's break down the AI hoopla as it relates to this Vanguard ETF. In culinary terms, the utilities fund is more of an AI nibble than a buffet.
At the end of the day, it's still a utilities ETF. That means its 2.7% dividend yield and its potential to rally if the Federal Reserve gets around to cutting interest rates are appealing traits for income investors looking for a sector ETF to hold for the long term.
Speaking of the long term, this ETF lives up to its Vanguard DNA, charging just 0.09% in management fees per year, or $9 on a $10,000 stake. That's well below the average expense ratio of 0.97% found on comparable funds.
