From 24/7 Wall St. · Ryne Mauck · · 2m
America's Power Buildout Accelerates with 3 ETFs
Three ETFs target U.S. infrastructure spending as grid demand surges from AI data centers and electrification.
In brief
Three ETFs target U.S. infrastructure spending as grid demand surges from AI data centers and electrification. Three ETFs offer distinct investments in the accelerating U.S. power grid buildout driven by AI data centers and vehicle electrification. Originally reported by 24/7 Wall St..
U.S. Grid Rebuild Accelerating
American electricity demand is growing fast enough to force a wholesale grid rebuild due to hyperscale data centers, factory reshoring, and vehicle electrification.
“The Department of Energy projects data centers alone could reach up to 12% of U.S. electrical demand by 2028.”
Three ETFs Target Infrastructure Spending
Global X U.S. Infrastructure Development ETF (PAVE), Utilities Select Sector SPDR Fund (XLU), and First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) offer distinct routes into this spending.
“The U.S. grid rebuild is accelerating fast enough that three very different ETFs are all chasing the same dollars, but they disagree sharply on where the real money gets made.”
Data Center Load Growth Driving Demand
PJM Interconnection’s monitor concluded data center load growth is the primary reason for recent and expected capacity market conditions across the mid-Atlantic and Midwest.
“data center load growth is the primary reason for recent and expected capacity market conditions, including total forecast load growth, the tight supply and demand balance, and high prices”
Transmission Projects Accelerate
Transmission projects driven by load growth were the second-largest category of projects entering service in 2024, trailing only reliability work, according to the Federal Energy Regulatory Commission.
“The Federal Energy Regulatory Commission’s 2024 State of the Markets Report flagged that transmission projects driven by load growth were the second-largest category of projects entering service in 2024, trailing only reliability work.”
PAVE: Broad Exposure to Contractors
PAVE offers broad exposure to U.S. industrials, engineering firms, materials producers, and heavy equipment names serving utilities, data center developers, and state DOTs.
“Global X built the fund around U.S. industrials, engineering firms, materials producers, and heavy equipment names serving utilities, data center developers, and state DOTs.”
PAVE's Top Holding: Quanta Services
Quanta Services, the country’s dominant electric transmission builder, holds 4% of PAVE’s net assets with trailing revenue of $32.9 billion and quarterly revenue up 41% year over year.
“The top holding is Quanta Services (NYSE:PWR) at 4% of net assets, the country’s dominant electric transmission builder.”
XLU: Regulated Cash Flow Anchor
XLU, the traditional choice for income-oriented investors, holds $23.1 billion in net assets with NextEra Energy at 12.9% of the fund.
“State Street’s utilities ETF holds $23.1 billion in net assets and is heavily concentrated: NextEra Energy (NYSE:NEE) is 12.9% of the fund, Southern Company 7.6%, Duke Energy 6.9%, and Constellation Energy 5.6%.”
GRID: Equipment Bottleneck Focus
GRID focuses on electrical equipment makers like transformers, switchgear, and cables, with top holdings including Eaton at 8.5% and Schneider Electric at 8.3%.
“First Trust’s smart grid fund holds $12.1 billion in net assets, concentrated in electrical equipment makers: transformers, switchgear, cables, and power management systems.”
Which Fund Fits Which Investor
Income-focused investors should anchor with XLU for its dividend and rate-base expansion, while those seeking broader buildout participation should hold PAVE or GRID for equipment bottlenecks.
“Income-focused investors should anchor with XLU for its dividend and rate-base expansion, though the dividend advantage is diminished by a 5% Treasury yield.”
In short
Three ETFs offer distinct investments in the accelerating U.S. power grid buildout driven by AI data centers and vehicle electrification.
