Utilities Have Slumped. It’s Their Time to Shine Again.

Utility stocks fell out of favor as investors piled into riskier assets, leaving the sector with lower valuations and steady growth prospects. (Luke Johnson/Bloomberg)

Key Points

• Utility stocks have dropped nearly 7% since mid-October, while the S&P 500 gained just over 3% in the same period.
• The utilities ETF trades at just under 18 times forward earnings, compared to the S&P 500’s just over 22 times.
• Utilities are projected to have just over 9% annual earnings-per-share growth over the next two years.

Utility stocks have dropped, but they now look more attractive — especially given the risks the market is starting to monitor.

The State Street Utilities Select Sector SPDR Exchange-Traded Fund is down nearly 7% from a record high reached in mid-October. That’s worse than the S&P 500’s just over 3% gain over the same period.

Investors have favored riskier stocks such as major artificial-intelligence names and financials, consumer, and manufacturing, which benefit from a strengthening economy. The Federal Reserve has cut interest rates and has indicated that further easing remains possible. Utilities, by contrast, became a source of cash, as investors sold defensive holdings to fund those bets.

Now, utilities look inexpensive—and attractive. The utilities ETF trades at just under 18 times forward earnings, based on analysts’ next-12-month forecasts, compared with the S&P 500’s just over 22 times. That’s also below the roughly 20 times multiple the sector commanded at its October peak, when the valuation gap was far narrower. When utilities move back into favor, they have often traded roughly in line with the broader market over the past five years.

Valuations probably aren’t reflecting their earnings potential — which looks strong. Utilities usually provide steady earnings growth, regardless of how the economy is performing, and FactSet consensus estimates project just over 9% annual earnings-per-share growth over the next two years.

Utility providers are building out new clean energy plants to provide electricity to households, businesses and AI-driven data centers. Even if Big Tech slows the pace of their data center buildouts, they’ll still have to pay at least a chunk of their electricity commitments.

Overall, much of the expected growth appears dependable, and could send the stocks upward over the next year, especially since valuations look fairly low.

“The sector continued to enjoy broad tailwinds in 2025 as data center buildout continued to drive rate base [total value of new plants] and EPS upside across the space,” KeyBanc analyst Sophie Karp wrote in a note. “Valuations are undemanding relative to their own historical levels as well as the broader market, and we continue to view the space as attractive.”

Historical patterns also support the case. As of Thursday’s close, none of the stocks in the utilities ETF were trading above their 50-day moving averages, while another defensive group, healthcare, had a slight majority of stocks above that threshold, according to SentimenTrader.

When the gap between utilities and healthcare has been this wide in the past, utilities have gone on to gain more than 10% on average over the following 12 months, SentimenTrader data show.

That’s a distinct possibility this time around, given what’s happening in markets today.

The market is becoming concerned that tech and other riskier sectors are overheated. It’s unclear when companies will slow AI investment, a shift that would pressure chipmakers and data-center suppliers. Meanwhile, the Fed could pause rate cuts if inflation doesn’t fall to its target, weighing on growth more broadly. Friday’s trading gave a glimpse into those worries, with the Nasdaq Composite and S&P 500 firmly in the red by mid-morning.

There’s plenty for investors to weigh, but one takeaway stands out: utilities appear positioned to outperform if volatility rises, while the broader market faces a more uncertain path.