Best Stocks: 2025 will be known as the year when boring utilities joined the growth team

CNBC

5 days ago

(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — It's quite possible that 2025 will be remembered as the year where defensive utilities became growth stocks. As Sean explains below, this sector is the second best performing group of stocks in the entire S & P 500 this year. This is remarkable when you consider that this is not a "risk-off" year in which investors reach for stocks that should hold up well in a downturn. It's a risk-on year so far and defensive stocks like consumer staples and healthcare are lagging. Utilities are bucking the trend and accompanying the Nasdaq and S & P 500 to new highs. Why? Two letters: A.I. Last year, Citi analysts estimated that, by 2030, data centers could be responsible for as much as 11% of the demand for electricity in America, up from 4.5% today. Utilities are responding to the massive capex being invested in cloud computing, data center infrastructure and the AI buildout with large investments of their own to modernize and raise capacity. These investments are allowing the utility companies to go back to their regulators and apply for electricity rate increases from their customers. When they win a formal rate case, estimates for profits and dividend payouts go higher, driving their share price up. DTE Electric, the regulated utility owned by one of the names on our list, DTE Energy (DTE) won its rate case this January when the Michigan Public Service Commission approved a $217 million rate increase - meaning a jump of $4.61 per customer, per month going forward. WEC Energy Group (WEC) , another name on our Best Stocks list, won a rate case last year which led to 6.9% and 8.5% rate increases for 2025 for the two Wisconsin electric and gas utilities the company controls. As utilities make this pitch to the commissions that oversee their capex spend and pricing, they are increasingly citing "increased electric demand from data center and tech sector development." This argument, along with the ongoing need to spend on forest maintenance and management against wildfire risks, is winning left and right. The combination of demand from AI usage and infrastructure along with the willingness of municipalities to invest in grid modernization and environmental protection has created a massive bull market in the utility sector. We'll show you four names with solid chart set-ups below, in addition to our regular Monday data drop. Sector Leaderboard As of 7/28/2025, there are 154 names on The Best Stocks in the Market list. Top Sector Ranking: Top Industries: Top 5 Best Stocks by Relative Strength: Sector Spotlight: Sean — Despite signs of a meme-stock revival, utilities—a traditionally defensive sector—are the second-best performing group in the S & P 500 YTD. Ninety percent of the utility sector is above their 50-day and 200-day moving average. Compare that to the overall S & P 500 which has 73% of constituents above their 50-day and only 64% above their 200-day moving average. This is not a market where traditional defensive sectors are leading. While utilities are second best, health care, energy, and staples are three of the four bottom performing sectors in 2025. In the meme-crazed year of 2021, from January through July, utilities were the worst performing sector year-to-date up 6%, while 9 other sectors were up double digits. Similar to how Spotify and Netflix are looking more defensive, utilities are getting wrapped up in a more growth-oriented story. A major driver is the rise in electricity usage tied to artificial intelligence. Data centers supporting AI workloads are consuming an increasing share of the U.S. power grid and are expected to rise from about 4.5% today to 11% by 2030. Look at what the market is telling us. There is some rotation under the surface and a handful of the names on our list are setting up nicely as the AI theme plays out. Ameren Corp (AEE) Ameren is a regulated utility company that generates and distributes electricity and natural gas to customers in Missouri and Illinois, paying a 2.84% dividend. The company operates a diverse mix of energy sources and is focused on grid modernization and transitioning to cleaner energy. CenterPoint Energy Inc (CNP) CenterPoint Energy , which pays a 2.29% dividend, delivers electricity and natural gas to customers primarily in Texas, Indiana, and surrounding states. It focuses on utility operations and infrastructure, having divested most of its non-utility businesses in recent years. DTE Energy Co (DTE) DTE Energy is a diversified energy company serving customers with electric and gas utility services, paying a 3.13% dividend yield. It also has non-utility operations in power and industrial projects, and is investing in renewable energy and carbon reduction projects. DTE's presence in Detroit is notable in the age of the electric vehicle. WEC Energy Group Inc (WEC) WEC Energy Group, which has the highest dividend yield of the four we mentioned at 3.26% provides electricity and natural gas to customers in the mid west. WEC is primarily focused on energy-related infrastructure investments and clean energy projects. Together, these utilities — AEE, CNP, DTE, and WEC — may seem like traditional defensive plays, but they're increasingly at the center of one of the most powerful growth trends in the market. As data center demand surges, the companies powering the grid are becoming essential enablers of the AI revolution. These stocks are bending to a more growth-oriented narrative, where consistent power delivery is becoming just as valuable as the innovation itself. Risk Management Josh — My favorite chart among the utility names on our list right now is DTE. After the company reported earnings in May, Wells Fargo raised its price target from $145 to $154, citing the company's reaffirmed guidance through the year 2027 and management's "sustained confidence in achieving targets at the higher end of projections" for the next few years. If you're buying this stock, it should be for an investment, not a trade, given how important the dividend yield will be for the total return you can potentially receive. Trading in and out of a dividend stock means missing out on that component of the return. Analysts currently expect DTE to raise its current 3%-ish dividend yield by 6% to 8% per year, each year, through the end of this decade. With a current payout ratio between 50% and 60%, DTE has plenty of room to increase this portion of its income it returns to you every year. So long as management maintains its forward guidance, I would use dips in the stock as opportunities to accumulate as opposed to selling or trimming exposure. For the risk-averse, consider the 50- week moving average as your line in the sand. You can see that this has been important support for the uptrend back to early 2024. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC" TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.