US utility stocks delivered their strongest first-quarter performance since 2019, with the S&P 500 Utilities Index rising 7.5% amid broader market declines, according to LSEG data reported by Reuters.

The S&P 500 fell 4.6% over the same period—its worst quarter since 2022—pressured by inflation concerns and rising energy prices. A recent US-Iran ceasefire has since supported a partial market recovery.

Utilities acted as a safe haven during heightened volatility from the US-Iran conflict. Investors rotated into the sector for its stable dividends and lower volatility, a pattern noted by Matt Stucky, chief equity portfolio manager at Northwestern Mutual.

Other bond-proxy sectors like real estate and consumer staples also gained, but utilities led among defensives.

A key tailwind emerged from exploding electricity needs for AI infrastructure. The Electric Power Research Institute projects data center power demand could quadruple by decade's end, consuming up to 17% of US supply.

Big tech firms are driving this: Alphabet, Meta Platforms, and Oracle are expanding data centers with massive capex. Barclays estimates annual AI infrastructure spending by Western hyperscalers could top $1 trillion, far exceeding consensus.

Gerry Sparrow, president of Sparrow Capital Management, highlighted recent utility earnings calls emphasizing data center loads displacing other demand.

Companies serving high-growth regions stand out. NextEra Energy (NEE), with a focus on renewables and serving Florida's data hubs, trades at $92.05 with an Outperform consensus and $94 target price.

Dominion Energy (D), active in Virginia's data center corridor, sits at $61.84 on a Hold rating with $68.50 target.

Duke Energy (DUK) and Xcel Energy (XEL), covering the Midwest and other key areas, have Outperform ratings; DUK at $131.71 with $125 target, Xcel at $78.09 eyeing $79.

These firms benefit from industrial clients in Virginia, Texas, Florida, and the Midwest, per analysts. Even as risk-on trades resume post-ceasefire, AI exposure may sustain relative strength.