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Investing in the power behind AI

With the corporate world looking to adopt artificial intelligence capabilities into their products and services, demand for power to develop AI data centers is driving growth for utilities, says Fidelity's Pranay Kirpalani.

Fidelity Portfolio Manager Pranay Kirpalani believes utilities stocks are well-positioned to experience strong growth in the coming years, charged by expectations of robust demand for power due to the growth of data centers and artificial intelligence capabilities.

“The rapid emergence of AI is powering growth in utilities, making the sector one of the most interesting and exciting areas of investment,” says Kirpalani, who manages Fidelity® Select Utilities Portfolio (FSUTX). “We are just in the earliest innings of AI’s impact on the U.S. power grid.”

AI requires immense computational power, storage space and low-latency networking for training and running models, according to Kirpalani. “These AI applications are usually hosted in data centers and power is the ‘feedstock’ for AI servers,” he says.

In managing the sector strategy, Kirpalani favors companies with durable earnings growth that are trading at a reasonable valuation or that he believes are mispriced, given their growth and return prospects.

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Interested in Fidelity® Select Utilities Portfolio? Research FSUTX.

To that end, Kirpalani explains that querying a large language model AI chatbot, such as ChatGPT, Gemini, Claude or Microsoft Copilot, requires about 10 times more computing power than a typical Google search. He adds that data centers currently account for roughly 4% of total U.S. electricity demand, noting that greater use of AI could drive that figure to around 10% by the end of this decade.

“As a result of this intense growth in demand, large technology companies are striking deals with power producers,” Kirpalani says, noting that Meta Platforms (META), parent of Facebook and Instagram, recently signed a 20-year purchase agreement with independent power producer Constellation Energy (CEG), the fund’s second-largest position as of September 30.

The portfolio manager believes steady, targeted investment in the power grid and new power generation is necessary to satisfy the growing demand over the next 10 years. “This will fuel the development of power capacity from multiple energy sources, including nuclear, natural gas and renewables,” Kirpalani says.

As a play on this theme, he cites NextEra Energy (NEE) (renewable energy), Cameco (CCJ) (nuclear) and GE Vernova (GEV) (gas-powered turbines) among notable fund holdings at the end of September.

“Given my multiyear outlook for rising power demand, I believe each of these companies is well-positioned for sustained growth and offers the potential to create long-term value for shareholders,” he concludes.

For specific fund information, including full holdings, please click on the fund trading symbol above.

Pranay Kirpalani
Pranay Kirpalani
Portfolio Manager

Pranay Kirpalani is a research analyst and portfolio manager in the Equity division at Fidelity Investments.

In this role, Mr. Kirpalani is responsible for providing research and recommendations on several stocks across Global Infrastructure. Additionally, he serves as portfolio manager of Fidelity Infrastructure Fund, Fidelity Select Utilities Portfolio, Fidelity VIP Utilities Portfolio, and Fidelity Advisor Utilities Fund. He is also a co-manager of Fidelity Telecom and Utilities Fund, FIAM Small/Mid Cap Core Commingled Pool and FIAM Small/Mid Cap Core Utilities Sub Portfolio. As a member of Fidelity’s Stock Selector Large Cap Group, he is also responsible for managing the utilities sleeves for various diversified sector-based portfolios.

He has been in the financial industry since 2013.

Mr. Kirpalani earned his Bachelor of Arts in economics from The University of Pittsburgh.

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