Seeking income through AI-linked exposures

Quick read:

• Advisors are searching for ways to add resilient income while capturing long-term growth.
• Utilities and infrastructure, which have been considered as mature, defensive sectors, are being reshaped by AI-driven electricity demand and a global wave of investment.
• Our Multi-Asset Income (MAI) team’s exposures to these sectors aim to provide ballast in portfolios while also tapping into structural growth opportunities that we believe can extend well beyond today’s market cycle.

Advisors are increasingly focused on these two questions:

1. How can I add resilient income to client portfolios?
2. How can I capture the long-term growth potential of artificial intelligence (AI)?

Our Multi-Asset Income (MAI) model portfolios seek to deliver on both. This year, we have increased exposure to U.S. utilities and global infrastructure equities - sectors often characterized as “defensive,” but we believe they are now evolving into fruitful income and growth opportunities.

Utilities to benefit from AI

What has led to this evolution? Utilities have been experiencing broad-based momentum as investors increasingly view the sector as a key beneficiary of structural shifts in electricity demand - particularly the surge driven by AI adoption and the expansion of data centers, which are projected to consume huge amounts of power. U.S. technology giants are expected to spend nearly $450 billion per year by 2027 on data center power demand, up from an estimated $300 billion at the end of 2024.¹ We believe utilities may be the direct beneficiaries of this demand growth. As shown in the chart below, analysts now forecast sector earnings to climb over 73% on average over the next three years, compared to the average of the previous five years.

Utility sector annual earnings per share (EPS) growth, forecast

For investors, we feel this is worth paying attention to. In our opinion, utilities and infrastructure are no longer just mature, defensive sectors offering income, or slow growing “bond proxies.” Instead, we believe they are becoming essential in powering the next stage of global growth and have the potential to provide both income and long-term growth opportunity in portfolios.

Infrastructure: a broader growth story

Utilities are just one part of a bigger infrastructure investing revival. After years of underinvestment, governments and companies around the world are spending heavily on the “backbone” assets that help keep economies running and creating AI infrastructure opportunities.²

Energy infrastructure has been seeing growth, especially in natural gas pipelines and export facilities, as global demand for U.S. liquefied natural gas increases.³ Transportation networks are also in focus. In North America, major railroads are exploring mergers that could reshape trade routes. In Europe, transportation companies have benefited from government spending plans and have offered attractive valuations.³

From a global perspective, we believe valuations remain appealing as shown in the chart below. Global infrastructure earnings are expected to grow at 8% annually for the next three years.⁴ However, despite strong earnings momentum, many infrastructure companies have been trading at discounts compared with the broader stock market. We feel this gap between fundamentals and return creates an opportunity for investors.

Infrastructure valuations at relative lows versus equities

Multi-Asset Income Portfolios: Utilities and infrastructure as engines of income and growth

In the Multi-Asset Income model portfolios, we expressed our preference for utilities and infrastructure earlier this year. In April, we favored U.S. utilities as a portfolio ballast while also providing direct exposure to rising power demand from AI. In June we leaned into global infrastructure to seek opportunities across utilities, transportation, energy, and other essential assets - all in a yield-focused way that aligns with the models’ income objectives.

For advisors and clients, we believe the takeaway is clear: utilities and infrastructure are no longer just a “boring” corner of the market. They are deeply integrated in the AI revolution and, in our view, allocating to these sectors may provide resilience today and growth potential for tomorrow.

Investing involves risks, including possible loss of principal. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index.

Performance data quoted represents past performance and is no guarantee of future results. Investment returns and principal values may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. All returns assume reinvestment of dividends and capital gains. Current performance may be lower or higher than that shown. Refer to blackrock.com for most recent month-end performance.