Beneath the sector surface: why utilities is about to become the highest stakes sector

After betting against the mortgage market and winning, Scion Capital founder Michael Burry (the hedge fund manager portrayed by Christian Bale in ‘The Big Short’), started investing in water.

And while Burry believes the way to invest in the future value of water is to buy farmland, traders and investors looking to emulate his approach without owning land are turning their attention to the broader utilities market.

It’s been a turbulent few years. And the sector has now returned to what most analysts would agree is fair value.

And although traditionally viewed as a defensive play, utilities is a surprisingly dynamic market with rapid innovation and unique opportunities.

External forces play their part, so the market suits investors with a keen eye for world events, with the most influential market dynamics being:

• Increasing demand
• Disruptive technology
• Geopolitics

If you still think of the utilities sector as oil wells and power grids, it might be time to refresh your perceptions.

Developments in the sector worth your attention include:

• AI-powered solar panel management
• Battery storage
• Software

In this article, we’ll explore the drivers of sector change and how world events cause ripples (and tidal waves) in the utilities market.

Read on to discover what data centre growth means for the future of energy and how micro-cap tech firms are challenging the perception of the utilities sector as simply a safe harbour from market volatility.

What’s behind the world’s increasing energy demand?

Electricity continues to be a complex and fragmented market that has historically intimidated less experienced investors. Water remains exposed to frequently changing regulations, but commodity-specific ETFs provide an opportunity to capture the growth potential of purification and storage tech. Gas and oil are still volatile commodities with uncertain futures.

But that doesn’t mean your only opportunities involve owning commodities.

Infrastructure, technology and even software form an important part of the sector mix.

The United States is responsible for a lot of the increased energy demand. Despite being the world’s largest economy, it is currently undergoing an enormous program of electrification.

The importance of nuclear energy is set to grow, as US President Trump has vowed to unleash energy production, and technology giants view it as a good carbon-free solution for data centres powering AI.

Electric vehicle adoption is moving the needle too. In 2023, 18% of new cars sold were electric.^[1] China, the EU and United States were responsible for the bulk of that demand. We can expect to see the EV share of the market increase exponentially over the coming five years as smaller economies roll out their own clean energy policies to hasten the shift away from the internal combustion engine.

What does this mean for oil?

For day traders, the price volatility might prove attractive. Investors looking for long term growth might be put off by the degree to which the oil sector relies on cars having engines. Sophisticated traders can take tax efficient positions on a range of assets without buying the stocks themselves. Discover how with our guide to spread betting.

Technology has the potential to drive down energy consumption and cost

How and where energy is generated, stored and distributed is going to have a huge impact on the sector outlook. Distributed energy resources (DERs) allow energy to be produced closer to where it’s needed. This approach reduces waste and accelerates clean energy adoption.

The distributed generation sector has long been attracting investor attention due to its growth potential.

In May 2025, battery storage leader Stem Inc. announced that revenue had grown 27% year-on-year, and annual recurring revenue (ARR) was up 8% from the end of the previous quarter and 26% year-on-year.^[2]

Hidden among the headline figures lies a compelling subplot. Stem Inc. has been quietly pivoting away from battery storage and toward AI-powered software to support the management and deployment of clean energy assets. They’ve gone from hardware to software, and the markets like it.^[3]

Expect to see growing investor interest in other micro-cap enterprises building and maintaining the transitional infrastructure demanded by NET Zero.

Nexttracker Inc. is another fascinating contributor to the clean energy movement. They make tracking systems for commercial solar plants, effectively increasing the yield in solar energy by automatically moving the panels to follow the sun. Over the past six months, its stock price has swung from a high of $61.31 to a low of $30.93.^[4]

This action has attracted a large amount of sell-side and buy-side interest. At the end of last year, institutional investors were reducing their positions. Then, after a quiet Q1 2025, Blackrock increased its position by 0.6%. In early May, Bayesian Capital Management LP bought 50,900 shares.^[5]

Geopolitics: from policy to power outages

What do water filters, wind-up radios and camping stoves have in common?

Shops sold out of them in a single day at the end of April 2025, after major power outages affected Spain, Portugal and parts of France.

And while the ability of a nation to keep its lights on has obvious first-order effects, the longer-term implications can be fascinating too. While politicians are firmly in the driving seat when it comes to setting the climate agenda, we shouldn’t underestimate the extent to which consumption habits react to world events.

From the 1997 Kyoto Protocol to the 2015 Paris Climate Accord, world leaders love signing ambitious environmental pledges.

But does this make clean energy a savvy investment?

It might be the future of the utilities market, but investors have historically struggled with clean energy. Interest rates have made capital investment expensive, and supply chain friction is slowing down routes to market for the next generation of products. Returns on clean energy investment for the 2024 year-end had dropped to 4.3% from 11% two years prior.^[6]

The technology and software that underpin clean energy production and storage might be more attractive than the energy itself.

The bottom line

There are effectively two facets to the utilities sector. On the one hand, there are gigantic legacy corporations pumping gas out of the ground, and on the other, nimble tech firms are driving the switch to renewables.

Legacy utilities offer a comforting blend of stability and reliable dividend performance. Clean energy tech presents longer-term growth capture opportunities.

Sophisticated investors should be paying close attention to where the two extremes intersect.

Want more? Our 2025 outlook focuses on US utilities and the AI revolution.