XLU ETF set to gain as AI data centers drive 1 GW demand

The State Street Utilities Select Sector SPDR ETF, long viewed as a defensive holding, is emerging as a growth play tied to the AI infrastructure buildout.

XLU is gaining as AI data centers drive a structural shift in utility demand, with Meta alone building a 1-GW campus in Alberta that will consume roughly three-quarters of Edmonton's current power draw.

"Data centers are the most significant new source of electricity demand in a generation," said Asa Watten, a researcher at the Electric Power Research Institute.

Average US residential electricity rates would have been about 6% higher without data centers built from 2019 to 2024, according to EPRI research. Meta's CAD $13 billion Sturgeon County campus, at 2.9 million square feet, is the company's largest facility outside the US and one of dozens of hyperscale projects under construction globally. The facility will be powered by a dedicated natural-gas plant, the Greenlight Electricity Centre, a CAD $4.6 billion project expected to reach operational status in late 2030.

The shift transforms utilities from a defensive yield play into a growth sector tied to AI infrastructure. Meta alone plans to spend as much as $145 billion on AI-related capital expenditure in 2026, much of it on power-intensive data centers. Micron Technology this week raised its US investment plans to $250 billion through 2035, citing AI memory demand.

How data centers lower — then raise — power bills

The economics of data center demand follow a J-curve. In regions with excess grid capacity, new data centers spread fixed infrastructure costs across more customers, lowering rates for everyone. North Dakota saw residential prices decline from 2019 to 2024 as data centers absorbed surplus power from coal, natural gas, and wind generation, according to Ryan Hledik, a principal at The Brattle Group.

But in regions where demand outpaces supply, the effect reverses. The mid-Atlantic and parts of the Midwest, overseen by grid operator PJM, are already seeing data center demand drive up costs as generation capacity fails to keep pace, Hledik said.

Alberta's bet on dedicated generation

Alberta's approach to the data center boom illustrates the policy trade-offs. The province passed legislation in fall 2025 establishing a "bring your own power" framework, allowing operators to build dedicated generation rather than drawing from the shared grid. Meta has fully funded its own generation and grid infrastructure for the Sturgeon project, including transmission upgrades built with AltaLink and the Alberta Electric System Operator.

The Alberta government says the arrangement will reduce transmission costs for ratepayers by up to 6%. But critics argue the framework locks in natural gas demand at a time when the province's grid already has an electricity emissions intensity nearly five times the Canadian national average.

David Pickup, director of the Pembina Institute's electricity program, said Alberta has "agreed to lock in gas today and build renewables later," while data center operators in other markets are pursuing hybrid approaches that integrate wind and solar from the outset.

What this means for XLU holders

The structural demand shift creates a durable revenue base for utilities that can secure hyperscaler contracts. XLU, which tracks 31 US utility companies, offers exposure to regulated utilities that are increasingly filing rate cases tied to data center infrastructure investments. Investors should watch upcoming rate case decisions and capacity auction results from PJM and other grid operators, as these will determine whether the sector's growth translates into earnings.

This article is for informational purposes only and does not constitute investment advice.