Forget the Magnificent Seven. These AI plays are red hot.

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New York

Wall Street's AI enthusiasts are expanding their horizons.

The S&P 500's utilities sector is up 14% this year, making it the third-best performing category behind information technology and communications services. The sector is also outpacing the benchmark index's 11 percent gain. Vistra shares are up 152% this year, Constellation Energy shares are up 91% and NRG Energy shares are up 63%.

This is a reversal of the sector's door returns last year. Utility stocks fell more than 10% in 2023, paring the S&P 500's 24% gain, as investors flocked to the Magnificent Seven big tech stocks, betting on an artificial intelligence boom. Wall Street also turned away from dividend-paying stocks, many of which are utilities, as higher interest rates have made bond yields the most attractive they've seen in years.

The playbook has changed this year. Big Tech's market leadership has been cracked. At the same time, investors are looking for cheaper alternatives to the Magnificent Seven, whose prices hit record highs after last year's technology-driven monster stock rally.

Enter utility. These stocks are generally seen as defensive plays, as people prefer paying for necessities like electricity over discretionary purchases when the economy is in bad shape. But investors are betting this year that utilities will play a key role in building and operating the infrastructure needed to serve AI.

The utilities sector is currently trading at about 17 times its expected earnings over the next 12 months, lower than the S&P 500's multiple of about 21 and information technology's about 28 times.

“Investors are now committing crime with utility,” researchers at Bespoke Investment Group wrote in a Monday note. “It takes a lot of power to run AI, and with the demand for (electric vehicles) and modern-day heating and cooling needs, our current grid seems woefully inadequate.”

According to the International Energy Agency, a Google search requires an average of 0.3 watt-hours of electricity, while a ChatGPT application typically uses about 2.9 watt-hours. With about 9 billion searches a day, if search engines fully implemented AI, it would require about 10 terawatt-hours of additional electricity a year. The agency predicts that AI-related electricity demand will increase at least tenfold by 2026.

In addition, the defensive qualities of utility stocks have been attractive to investors who fear the Federal Reserve will hold rates after a break in tepid inflation data. While the April Consumer Price Index showed that prices cooled last month, investors expect the Fed to start cutting rates as soon as September.

To be sure, not everyone is jumping into utility stocks. Adam Trunquist, chief technical strategist at LPL Financial, said the company remains neutral on the sector despite potential upside.

“The pace of utility company growth is not comparable to the poster children of AI” such as Nvidia and Super Micro Computer, Tranquist wrote in a May 9 note.

As my colleague Alicia Wallace reports, after a hot start to 2024, inflation cooled again in April, giving Americans some hope for higher prices.

Consumer prices rose 3.4 percent for the 12 months ended in April, down from 3.5 percent a year earlier, according to the latest Consumer Price Index report released Wednesday by the Bureau of Labor Statistics.

On a monthly basis, prices rose 0.3 percent, a slower pace of growth than 0.4 percent two months ago.

Economists were expecting a 0.4% monthly increase and an annual increase of 3.4%, according to FactSet's consensus estimate.

Rising gasoline and shelter costs accounted for more than 70 percent of the monthly increase in overall inflation, according to the report.

While higher housing costs and higher prices at the pump continue to weigh on Americans, Wednesday's report provided some welcome news about another key spending area: Grocery prices fell for the first time in a year, since March. 0.2 percent fell.

A more closely watched core measure of inflation showed even more progress. Core CPI, which strips out the more volatile energy and food categories, slowed to 3.6% from 3.8%, its slowest rate since April 2021.

From a month earlier, core CPI rose 0.3 percent, its slowest pace since the end of last year.

Read more here.

Taylor Swift's smash hit “Erases Tour” is set to drive nearly $1 billion in spending in the U.K., according to Barclays estimates.

The British bank said in a report on Wednesday that it expects around 1.2 million Swifties to attend the superstar's shows in Britain this summer, with the average fan spending £642 ($810) on travel, accommodation and other expenses. Expect to spend. £755 million ($953 million) in the economy.

It's the latest example of “Swiftonomics” — the musician's ability to influence the economies of the cities and countries she visits on her massive world tour, which kicked off in the United States in March last year, my colleague Anna According to Kuban's report.

Fans are likely to spend £121 ($153) on accommodation, £111 ($140) on travel and £59 ($74) on restaurants around venues, according to Barclays, which based its estimates on customer transactions. Based on data and proprietary user research.

Swift will play 15 shows in June and August across four UK cities in England, Wales and Scotland. Barclays said the concerts sold out within minutes of tickets going on sale, with fans spending an average of £206 ($260) on a ticket.

Including the price of the ticket, UK concertgoers will spend, on average, £848 ($1,068), 12 times more than the average price of a night out in the UK, according to Barclays research.

Read more here.

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