Is the Vanguard Utilities ETF the Smartest Investment You Can Make Today?

Artificial intelligence (AI) isn't just a trend. It's reshaping industries with an unprecedented demand for computing power. At the core of this growth are power-hungry data centers. Modern AI models use far more electricity than traditional cloud workloads. Graphics processing units (GPUs) behind this technology run hot, require heavy cooling, and operate continuously.

As tech giants like Amazon, Microsoft, Meta, and Alphabet expand their data center footprints, and with Nvidia's new GPUs requiring more resources, utilities are bracing for a dramatic spike in electricity demand. In high-growth regions, such as Texas or other areas with data center hubs, energy demand is expected to increase by 20% to 50% by the 2030s.

This is a massive shift in demand for energy and utility providers, which are accustomed to operating in slow-growing, steady markets. For investors, this creates an opportunity: The companies that generate, transmit, and store power stand to benefit from the build-out of AI. In this scenario, one smart investment you can make today is the Vanguard Utilities ETF (NYSEMKT: VPU). Here's why.

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Hyperscalers have made huge deals with utility providers

Over the past couple of years, large technology companies that provide cloud services, also known as hyperscalers, have secured multi-gigawatt long-term power purchase agreements (PPAs) to support their data center campuses.

Last year, Microsoft entered a 20-year PPA with Constellation Energy to restart the unit previously at Three Mile Island Unit 1, renamed the Crane Clean Energy Center in Pennsylvania. The contract helps bring that reactor back online to supply carbon-free power to the PJM grid region.

Meta Platforms signed a 20-year virtual PPA with Constellation Energy in June. Under the deal, Meta will procure the clean energy from the Clinton Clean Energy Center (Illinois) starting in June 2027. It also locked in a PPA for the entire output of a 600 MW solar farm in Texas with Enbridge. These deals help Meta meet the energy needs of its growing data center footprint with clean, renewable energy.

These PPAs are just a couple of several deals that hyperscalers have made to secure fixed-cost, low-carbon power, while providing utility companies with secured demand and visibility into future earnings.

Diversify across the energy landscape with this ETF

Energy demand is expected to grow more rapidly in the coming years than it has in the past. According to Grid Strategies, annual peak demand growth is expected to average 3% over the next five years. While that may not seem like much, it's well above the rate of growth over the past two decades, which has averaged just under 1% per year.

This booming demand should bode well for those in the utility space, which is why the Vanguard Utilities ETF is a solid choice for investors. The Vanguard Utilities ETF is a low-cost way to own a diverse portfolio of stocks in U.S. utility companies, which include electric, gas, and water providers, as well as some independent power producers.

It tracks a broad MSCI utilities index, so you're getting the established names that actually deliver power, maintain grids, and operate critical energy infrastructure. It also includes major players positioned to benefit from rising electricity demand tied to data center build-outs, without relying on a single stock pick.

Some of its top holdings include NextEra Energy (10.4% of its holdings), Southern Company (6.9% of its holdings), Constellation Energy Corporation (6.9% of its holdings), and Vistra Energy (4.4% of its holdings). These energy companies have a diverse portfolio of assets, including natural gas, nuclear, wind, solar, and battery storage, which should benefit from a data center energy boom in the coming years.

A smart way to capitalize on the data center build-out

While data center expansion continues at breakneck speed, a real bottleneck is the electricity needed to power it. Utilities and energy infrastructure companies with their regulated networks, renewable portfolios, and ability to finance large-scale projects are positioned to be the quiet winners.

The AI build-out will only deepen reliance on reliable energy. With the Vanguard Utilities ETF, you can diversify across a slew of operators in the industry while capitalizing on AI's growing energy demand in the coming years.

Courtney Carlsen has positions in Alphabet, Constellation Energy, Microsoft, and Vistra. The Motley Fool has positions in and recommends Alphabet, Amazon, Constellation Energy, Enbridge, Meta Platforms, Microsoft, and NextEra Energy. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.