The S & P 500 ‘s artificial intelligence fueled run is leaving the utilities sector in the dust, but a few overlooked names could be poised for gains, Wells Fargo said. “Utes have not performed like AI stocks YTD, lagging the SPX by ~330 [basis points],” or 3.3 percentage points, wrote a team of analysts led by Sharr Pourreza in a Tuesday report. Still, the analyst recommended owning utilities for their diversification “with re-rating upside in time.” While the S & P 500 is ahead 9.8% in 2026, the utilities sector has risen 7.5%, both excluding reinvested dividends. .SPX XLU YTD mountain The S & P 500 versus the State Street Utilities Select Sector SPDR ETF (XLU) in 2026 The sector’s underperformance and overall low correlation to the AI trade are tied to a few factors, including regulatory and policy risk, pushback against data center construction and investors’ tendency to focus on utilities’ near-term opportunities rather than the growing new developments linked to AI, analysts said. Further uncertainty hangs over a group of utilities that are tied to the PJM Interconnection , a massive regional grid operator across 13 states, including New Jersey, Maryland and Pennsylvania. Customers have been grappling with rising power costs , and the Federal Energy Regulatory Commission (FERC), will hold a conference Thursday to weigh what’s next for PJM, including the possibility of a breakup, Bloomberg News reported, citing senior White House officials. Still, Wells Fargo is optimistic on utilities, saying, “We see scope for all these overhangs to clear in time, some as soon as November, with utility stocks re-rating as a result.” Wells Fargo called out a list of emerging AI winners that could be poised to benefit from this clarity — and they also happen to offer income above the market average. “Buy the next wave of AI winners the (out of favor) eastern wires [companies] that will benefit from transmission and possible generation opportunities from AI once we get policy/regulatory clarity from FERC/PJM/PA,” the bank said. Exelon The Chicago-based utility company was one of the “out of favor” names highlighted in Wells Fargo’s report. Shares are up 7% in 2026, and the stock has a current dividend yield of 3.6%. Back in May, Exelon posted first quarter operating earnings of 91 cents per share, topping the FactSet consensus call for 88 cents a share. The company also reaffirmed full-year operating earnings guidance of $2.81 to $2.91 per share, versus analysts’ consensus estimate of $2.85 per share. “We continue to work closely with federal officials, PJM and state leaders, to address elevated supply costs and emerging reliability challenges across the system,” CEO Calvin Butler said on the company’s early May earnings call. “Let me reiterate, you cannot have a conversation about affordability without addressing the underlying shortage of generation.” Butler added that Exelon has focused on ensuring its data center pipeline is increasingly backed by FERC-approved transmission security agreements, which have secured about $1 billion of collateral. These agreements ensure that data center developers and other large customers pay for their share of infrastructure costs. For the most part, analysts rate Exelon a “hold,” according to LSEG. Consensus price targets see 5% upside from current prices. FirstEnergy Wells Fargo also called out Ohio-based FirstEnergy as a utility that could benefit from greater regulatory clarity and AI opportunities. In early June, FirstEnergy reaffirmed its 2026 core earnings forecast of $2.62 to $2.82 per share, compared to the FactSet consensus of $2.73 a share. The company also reported a 32% increase in contracted demand from data centers. FirstEnergy also said that discussions indicate there’s strong interest and support from hyperscalers and developers in generating additional power in West Virginia. “We are uniquely positioned to take advantage of data center growth, both in our service territory and across the region,” the company said in a June presentation . Shares of First Energy are up almost 10% year to date, and the stock pays a dividend yield of 3.8%. More than half of the analysts covering First Energy, which operates 10 utilities in six states, rate it a buy or strong buy, according to LSEG. Consensus price targets call for about 7% upside. Other names on Wells Fargo’s list include PPL , which is up nearly 3% in 2026 and has a current dividend yield of 3.2%, and Public Service Enterprise Group , down 1% this year and yielding 3.4%.
Utilities that could be the next beneficiaries of AI trade
