Texas regulators have paused new data-center hookups and increased application fees, significantly reducing American Electric Power's (AEP) data-center pipeline. This development casts doubt on the growth prospects of the Utilities Select Sector SPDR Fund (XLU), which relies heavily on utility companies involved in AI infrastructure buildouts. The inflated interconnection requests often include multiple filings for the same project, inflating demand figures. With regulators scrutinizing actual commitments and financial backing, the optimistic growth story for XLU may be overstated, making it more akin to a bond proxy with modest yields. Investors seeking AI-related utility exposure might consider more focused holdings like Constellation or NextEra, while those wanting broad utility exposure could find better value in alternatives like Vanguard's VPU ETF.
