State Street Utilities Select Sector SPDR ETF

XLU

Market cap $24.1B

The State Street Utilities Select Sector SPDR ETF (XLU) has long been viewed as a defensive investment, preferred by investors seeking stable cash flows, consistent dividends, and lower volatility.

Electricity is becoming a stronger economic growth engine, powering AI data centres, EVs, heat pumps and industrial decarbonisation. But grids aren't keeping up.

The AI data-center power crunch has turned utilities from bond proxies into growth stocks, and two funds sit at the center of that trade: the Utilities Select Sector SPDR Fund (NYSEARCA:XLU) and the Vanguard Utilities Index Fund ETF (NYSEARCA:VPU).

COLL, IRWD, AMTB and DUK stand out as defensive stock picks as investors rotate from AI-driven tech amid the ongoing sell-off and seek safer sectors.

US electricity demand grew roughly flat for a decade. That ended once hyperscalers began signing twenty-year power purchase agreements to feed AI training clusters.

Two stand out in particular: consumer staples and utilies. Both have historically demonstrated relatively defensive earnings characteristics while offering dividend yields comfortably above the broader market.

The State Street Utilities Select Sector SPDR ETF (XLU) was launched on December 16, 1998, and is a passively managed exchange traded fund designed to offer broad exposure to the Utilities - Broad segment of the equity market.

State Street Utilities Select Sector SPDR ETF offers defensive exposure with growing clean energy relevance, especially as AI-driven power demand accelerates. XLU's top holdings are securing long-term clean energy agreements with major tech firms, positioning the ETF as a proxy for AI infrastructure growth. While most XLU holdings are fairly valued short-term, forward P/E ratios suggest increasing undervaluation by 2027, supporting a medium-to-long-term buy case.

In H1 2026, part of my 2026 framework was confirmed: AI‑driven productivity, industrial strength, and utilities' power‑demand tailwinds played out, while the Iran shock created the only major deviation from expectations. However, the macro backdrop is changing: Brent is back in contango, Warsh is firmly higher‑for‑longer, growth and labor remain resilient, and hyperscalers continue pushing toward trillion‑dollar cumulative AI capex.

Industrials and utilities companies are capturing the first dollars of the artificial intelligence spending cycle. That may not be where most investors are currently focused.