Utility ETFs Soar 8% YTD on AI Power Demand. Here's Which One to Buy

XLU trades at 23x earnings, which is above its 17x historical norm, as Constellation and Vistra add direct AI data center power pricing exposure.

VPU delivers similar returns to XLU with broader diversification, while RSPU prevents any one stock from dominating the way NextEra does at 14%.

Don't wait: the analyst who called NVIDIA in 2010 just revealed his top 10 AI stocks. See the full list FREE now .

Utility stocks returned to focus in 2026 as artificial intelligence data center demand strained the power grid. That backdrop has pushed investors back into sector funds like the Utilities Select Sector SPDR Fund ( NYSEARCA:XLU ), the Vanguard Utilities ETF ( NYSEARCA:VPU ), the Invesco S&P 500 Equal Weight Utilities ETF ( NYSEARCA:RSPU ), and the actively managed Virtus Reaves Utilities ETF ( NYSEARCA:UTES ).

XLU sits at the center of the conversation. The fund carries a 0.08% net expense ratio, has climbed roughly 8% year to date, and pays a 2.6% dividend yield. The question for investors is whether that combination still offers the stability the sector is known for after a re-rating driven more by AI narratives than by regulated returns.

The Federal Reserve cut its target rate by 75 basis points between October and December of last year and has held at 3.75% through the first half of 2026. Lower short rates reduce financing costs for capital-intensive utilities and make regulated dividend streams look better relative to cash alternatives.

Longer yields tell a more complicated story. The 10-year Treasury sits at 4.54%, near the top of its 12-month range and above its 4.25% average. That level caps how far utility multiples can reasonably expand from here.

Behind both is power demand. Research cited in PineBridge's 2026 Equity Outlook points to roughly 25% annual growth in data center equipment for the next four to five years, constrained mainly by transmission and electrical infrastructure. That bottleneck is the utility bull case.

The Utilities Select Sector SPDR Fund tracks the utilities slice of the S&P 500 and holds 34 stocks with $22.5 billion in assets. The fund is market-cap weighted, which means the AI power theme shows up automatically at the top of the book. The top ten names represent roughly 58% of the portfolio, with NextEra Energy at 13.59% of assets anchoring the book alongside other mega-cap regulated and merchant operators.

Constellation and Vistra are the reasons this fund has behaved differently in 2026. Both operate merchant nuclear and gas generation facilities and have signed multi-year supply arrangements with hyperscalers. That gives XLU direct exposure to data center power pricing rather than only regulated rate base growth.

Shares trade near $45, up about 13% over the past year and 63% over five years. The trailing PE stands at 23x, elevated for a sector historically valued closer to 17x. Some of the growth premium in merchant power names is now showing up across the whole basket.

Vanguard's fund tracks a broader MSCI utilities index and holds a larger roster of small- and mid-cap names alongside the same megacaps that dominate XLU. Its expense ratio is 0.09%, essentially even with XLU on cost. Performance has tracked closely: 7.4% year-to-date and 13% over one year.

The distinction lies at the edges of the portfolio. VPU's longer holdings list captures water utilities and smaller regulated names that XLU underweights or excludes. For an investor who wants sector exposure without leaning as heavily into a handful of merchant power stocks, VPU is the more diversified expression of the same idea. The give-back is slightly less direct beta to the AI power trade.

Invesco's equal-weight product assigns each S&P 500 utility roughly the same portfolio weight and rebalances quarterly. That structural choice matters right now because market cap weighting has pushed nearly a third of XLU into a handful of names. RSPU dilutes that concentration by design.

The mechanism cuts both ways. If the largest merchant-power leaders continue to drive the sector toward AI-driven multiple expansion, RSPU will lag. If the theme broadens to smaller, regulated names catching up on rate-case wins and transmission spending, RSPU captures more of that move than XLU does. Investors who are uncomfortable owning a fund in which one stock accounts for 14% of assets have reason to consider the equal-weight version.

Virtus Reaves Utilities is the outlier on this list. It is one of the few actively managed utility ETFs of meaningful size, run by a small team that concentrates in a relatively short list of names and can shift between regulated utilities, independent power producers, and grid-adjacent businesses as opportunities emerge.

The fund carries a higher expense ratio than passive index products, reflecting the standard cost of active management. The case for UTES in 2026 rests on whether the manager's positioning in merchant power and grid-critical names outperforms the passive default. It is the most concentrated way to play the theme covered here, which cuts both directions when a single top holding stumbles.