2 Utility Stocks That Could Help Energize the AI Boom

Canadian Utilities (TSX:CU) and another great utility stock could indirectly benefit from the rise of AI.

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The generative artificial intelligence (AI) boom is the real deal. And it’s helped power many incredible tech stocks into the stratosphere, even in the face of numerous economic uncertainties and geopolitical horrors. Undoubtedly, the potential to be had from AI can probably only be described as profound. And it’s not just the AI chip (or AI accelerator) companies that will benefit. Over time, perhaps numerous industries could be transformed for the better as various pieces of software come to be.

Before such can happen, though, people need hardware and AI investment plans to invest in the long haul. As you may know, graphics processing units (GPUs) are stupidly expensive. For gaming purposes, it’s often the GPU that’s most expensive part of a new computer.

The AI boom is here: And it could entail increased energy demand

In an era of rising AI technologies, the same company behind your favourite GPU is behind the AI accelerators that make large language models (LLMs) like ChatGPT, Gemini, Mistal, Claude, Meta’s LLaMA, and more. Indeed, it’s a profound technology but one that entails a great deal of computing power.

As the GPUs in data centres hog ample amounts of energy, firms will also need to keep up with what could be a skyrocketing demand for energy. And that’s where the utilities come in. Currently, many aren’t priced with the long-term AI boom in mind. I think that’s an opportunity as cloud AI could continue to be the way we interact with AI models at work.

Here are two utility stocks that could benefit from increased AI model usage as the appetite for power goes up.

Fortis

Fortis (TSX:FTS) is a perfect one-stop-shop type of utility stock that can meet your defensive investing needs. The stock is in a bit of a funk at $53 and change per share. After not going anywhere for around five years, I view FTS stock as a potential bargain that’s hiding in plain sight.

Not only are shares cheap at 17.1 times trailing price to earnings (P/E), but the dividend is bountiful at 4.34%. Though not as high as various fixed-income securities, I view the dividend as impressive, given its stable track record of growth.

As more firms invest in AI data centres to gain exposure to the very best GPUs, energy demand could spike. And Fortis could be in for a bit of a growth spurt in the distant future. At the end of the day, more data centers mean more electricity will need to be transmitted.

Canadian Utilities

Another great utility is Canadian Utilities (TSX:CU), which I view as another boat that stands to be raised from higher tides brought forth by increased energy demand. The stock is deeply undervalued, with shares now down over 19% in the past five years.

The dividend yield of 5.75% is very generous and looks quite safe at current levels. At 14.5 times trailing P/E, shares of CU are absurdly cheap and could make for a great value buy for income investors seeking next-level value and hidden long-term catalysts. The $6.3 billion utility firm may be small, but it packs quite a punch for passive income fans!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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