Hedging and Piggybacking on AI! The US stock utility sector is transforming from "boring blue chips" to attractive investments.

Over the years, savvy investors have long bet that the increase in electricity demand brought by artificial intelligence (AI) will bring in huge profits for power companies, and the reality has confirmed this judgment. Today, this logic is completely out of the box, with the market soaring to unprecedented heights. Since the beginning of this year, the largest utility sector ETF in the US stock market has risen by 6.8%, easily outperforming the broader market. Once known for stable dividends and moderate growth, "boring blue-chip stocks" have now become a staple asset for all investment institutions. The market demand is so strong to the point of being almost greedy, with this sector now being labeled by analysts at SentimenTrader as experiencing a "extreme buying frenzy" - valuations have detached from the fundamentals, and the risk of a pullback is accumulating. The problem lies in the fact that most of the growth expectations in the sector may have already been priced in. On February 13, NextEra Energy (NEE.US) raised its quarterly dividend by 10%, setting a new all-time high for its stock price. The company has signed nuclear power supply agreements with Microsoft Corporation (MSFT.US) and Meta (META.US). Duke Energy Corporation (DUK.US) and Constellation Energy (CEG.US) have also seen continuous growth in their stock prices over the past year as they expand their data center partnerships with the two tech giants. "This trade is already very crowded," said Mark Malek, Chief Investment Officer at Muriel Siebert & Co. in an interview, "I do not recommend entering at the current level. For investors who have not yet jumped on board, the window of opportunity is now closed." An options trader closed out his long positions on the Utility Select Industry Index ETF-SPDR (XLU.US) on Wednesday, netting a profit of $400,000. The trade used call options, betting that the ETF would rise to between $47 and $52 by mid-June - after the ETF closed at $46.50 last week, the value of the position increased, although it has since fallen in the past two trading days. Although some traders are concerned that the market is nearing its peak, there are still staunch supporters who believe that investing in utility companies is a lower-risk option compared to betting on which company will succeed in the chip or consumer end AI space. Another source of demand comes from investors worried about the high valuations of tech stocks. They are reducing their holdings in tech stocks and turning to safer areas of the market - traditionally including utilities, healthcare, and essentials. Malek said, "If you're thinking about pulling out of hot AI concept stocks but don't want to miss out on the AI market, and the market is rotating from high-growth sectors, considering all these factors, utilities become very attractive." Citi analyst Ryan Levine shares a similar view, believing that investors flock to safe assets due to concerns about volatility in the AI sector, with utilities being the beneficiaries. "Utilities are on the winning side because companies will continue to expand power plant and transmission line construction. Compared to other economic sectors that may suffer, they are direct beneficiaries of accelerated capital expenditure," he said. Levine believes that even without the growth brought by data centers, there are multiple factors supporting the upward trend of the utility sector. "Capital expenditure increase brought by the popularity of AI, improvement in profit growth expectations, decline in interest rates, all of these are long-term bullish factors for the industry. Therefore, we are generally bullish on the regulated utility sector." Technical analyst Tyler Richey from Sevens Report stated that the rise in long-term US Treasury yields last week has boosted utility stocks. During market volatility, US Treasuries return to their traditional safe-haven role, and the decrease in borrowing costs is particularly beneficial for utility companies that rely on debt to invest in infrastructure. "The future trend of the utility sector largely depends on the next move of the US Treasury yields."