It’s hard to put new money to work in the utility scene when the rest of the market rewards the risk-on AI plays with seemingly instant gains. Indeed, investors are rushing back into the AI trade in a massive way, with semi stocks, a red-hot summer of AI IPOs, and all the sort, causing some investors to think about rotating a bit of capital from the proven Steady Eddie defensive dividend stocks towards the names that might be at greatest risk come the next sector-wide plunge. Of course, it’s hard to be a contrarian nowadays with the boring but profitable utility plays.
Even as AI data centres call for a new kind of grid and a huge surge in power demands, it can be easy to dismiss the names that are looking to make things happen from the power and transmission side of the equation. The way I see it, energy and electrons are turning into AI tokens.
And without energy, all of these AI applications, agents, and all the sort won’t be able to function. In any case, as investors begin to show more appreciation for the energy plays, I do think that some of the names could be in for a rise in their profitability profiles. Of course, for traders, the utility stocks are less than remarkable.
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Thinking longer-term could be key as euphoria returns to stocks
If you’re a long-term investor who’s looking for a name for the next five to eight years, however, there’s more to love about the top Canadian utility plays than their yields (which are slightly on the low end of the historical range, by the way), relatively modest multiples, or sleep-easy risk profiles.
In this piece, we’ll check in on one of the better names that still might be worth checking out, if not for battening down the hatches on the defensive side of one’s TFSA, RRSP, FHSA, or non-registered account, perhaps for the longer-term AI tailwinds, which, I think, will gradually work its way down to even the most boring plays that make it possible to feed these massive AI data centres that are going up.
Fortis stock: A bond proxy with growth tailwinds?
Fortis (TSX:FTS) is a fantastic play from the transmission side. It’s been viewed as a nice bond proxy for quite a while for defensive Canadian investors. And while the regulated utility makes for one of the most predictable dividend growth profiles out there, I do think that AI data centre projects could really start to enhance the narrative.
The company’s U.S. business, ITC Holdings, has really been quite busy, to say the least, amid the AI data centre boom. As the firm looks to invest in its infrastructure, I think the case for multiple expansion and earnings surprises just got a bit stronger. Any way you look at it, Fortis has the invaluable assets, and I don’t think the name is getting enough credit for its role in the AI boom from the energy transmission side.
It’s been a solid past year for FTS stock, with 20% gains in the books. My guess is that there will be more good things to come, as Fortis looks to keep delivering. It’s a premium, highly-defensive earnings grower, and it might not be priced as such quite yet at just over 22 times trailing price-to-earnings (P/E).
