Something unusual is happening beneath the surface of the stock market.
On TV, everything still looks fine.
The news says "buy." The indexes look safe.
Below the surface, a war is starting.
Big money is fleeing one group of stocks…
And piling into another.
This kind of split has only happened a handful of times in the last 125 years.
Each time, one side of the market eventually broke down hard.
But the other side? It made people very, very rich.
10x… 20x… even 30x winners.
We are at that breaking point right now.
I’m going on camera to show you exactly which side is which.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs
Utilities: The Unexpected AI Infrastructure Trade
Reported by Ryan Hasson. First Published: 3/2/2026.
Key Points
- Surging AI and data center demand is reshaping the utilities sector from a somewhat defensive yield play into a potential structural growth story.
- Institutional capital is rotating into utility ETFs like XLU and UTES as electricity demand forecasts rise.
- Companies such as Constellation Energy and NextEra Energy are positioned to benefit from baseload power needs and grid expansion tied to AI adoption.
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The utilities sector is undergoing a narrative shift few investors would have anticipated even two years ago. Traditionally viewed as defensive, income-oriented, and predictable, utilities are now being discussed through a very different lens: growth.
The catalyst is straightforward but powerful. Artificial intelligence and data center expansion are driving what could become an unprecedented surge in electricity demand over the coming quarters and years. AI models require enormous computational power, which directly translates into rising energy consumption. For a sector that has historically traded on yield and stability rather than rapid expansion, this represents a potentially unique inflection point.
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This is not a sudden shift — it has been building steadily. The most widely followed utility sector ETF, the Utilities Select Sector SPDR Fund (NYSEARCA: XLU), is up more than 18% over the past 12 months and has gained roughly 10.5% year-to-date, materially outperforming the broader S&P 500.
Institutional flows confirm the shift in sentiment. Over the past year, approximately $6.5 billion has flowed into XLU, compared to about $1.65 billion in outflows. Notably, a significant portion of those inflows occurred during Q4 2025, suggesting that large investors are positioning ahead of what they see as a durable structural trend. Price action supports the narrative as well, with the ETF recently breaking above its 52-week high following a bullish consolidation.
This renewed attention comes as Elon Musk has publicly warned of a potential AI-driven power crunch, noting that global development efforts could face electricity constraints as early as late 2026. If that scenario plays out, utilities may become a critical "picks and shovels" layer of the AI ecosystem, similar to how memory and semiconductor names have benefited over the past year.
For investors who agree with that thesis, here are three ways to gain exposure.
UTES ETF: A More Concentrated Utility Play
The Virtus Reaves Utilities ETF (NYSEARCA: UTES) offers a differentiated approach to sector exposure. Unlike XLU, which tracks a sector index passively, UTES is actively managed and seeks to outperform by selecting and weighting utility stocks based on fundamentals, growth characteristics, and risk metrics.
Liquidity is lighter than XLU's, with average daily trading volume around 260,000 shares, but investors gain a more concentrated portfolio. The fund currently carries a dividend yield of 1.31% and a net expense ratio of 0.49%. Its top holdings include Talen Energy (NASDAQ: TLN), Vistra (NYSE: VST), and Constellation Energy (NASDAQ: CEG), which together account for more than 30% of assets.
Constellation Energy: Nuclear Leverage to AI Demand
Constellation Energy is one of the most direct beneficiaries of rising baseload power demand. With a market capitalization of about $113 billion, the company operates a diversified generation portfolio, including one of the largest nuclear power plant fleets in the United States.
Nuclear power is particularly relevant in an AI-driven environment. Data centers require reliable, continuous electricity, and nuclear provides stable baseload generation without the intermittency challenges of some renewable sources. As hyperscalers expand AI infrastructure, dependable power becomes increasingly important.
Constellation's recent results reinforce the momentum. In Q4 2025, the company reported EPS of $2.30, beating consensus estimates, while revenue rose nearly 13% year-over-year to $6.07 billion. Institutional flows have been significant, with billions in net inflows over the past 12 months, underscoring growing conviction.
NextEra Energy: Scale and Infrastructure Advantage
NextEra Energy (NYSE: NEE), the largest weighting in XLU, represents scale. With a market capitalization approaching $200 billion, it is one of the largest electric power and infrastructure companies in the United States.
Shares are up roughly 19% year-to-date, outperforming both the broader market and many peers. NextEra operates across regulated utilities and renewable energy infrastructure, supplying power to millions of customers. As electricity demand accelerates, companies with established generation assets and grid infrastructure stand to benefit from higher utilization and potentially favorable pricing dynamics.
Recent analyst upgrades have cited growing confidence in long-term electricity demand, particularly as AI and data center expansion become more visible components of load forecasts.
That said, investors should weigh regulatory risk, capital intensity, and the long lead times for new generation and transmission projects before allocating. Utilities may be a compelling way to play AI-driven electricity demand, but they remain subject to policy, rate-setting, and execution risks that can influence returns.
Unmanned Profits: The New Kings of the Modern Battlefield
Reported by Jeffrey Neal Johnson. First Published: 3/6/2026.
Key Points
- AeroVironment's battle-proven loitering munitions have become an essential tool for modern ground forces, driving significant revenue growth.
- Kratos is pioneering the future of air combat with its high-performance, attritable aircraft, designed to serve as a powerful force multiplier.
- Red Cat’s strategic partnerships are rapidly expanding its capabilities into new defense domains, including counter-drone systems and maritime security.
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The 21st-century battlefield looks fundamentally different than it did a decade ago. The new calculus of conflict is no longer solely determined by the number of tanks or fighter jets a nation possesses. Instead, strategic dominance is increasingly won through the deployment of sophisticated, cost-effective and often expendable unmanned systems. This technological pivot has been on full display in recent global conflicts, where swarms of intelligent drones have proven capable of altering the course of battles—delivering precision strikes and invaluable intelligence without risking a single human life.
This paradigm shift has created a distinct opportunity for investors. While the entire defense sector has garnered attention, the most direct exposure to this trend is not found within the diversified portfolios of defense conglomerates. Rather, it lies with specialized, pure-play companies whose growth is directly tethered to the success of unmanned technology.
AeroVironment: The Battle-Tested Industry Standard
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AeroVironment (NASDAQ: AVAV) has solidified its position as an industry standard in the unmanned aerial systems (UAS) space. With deep, long-standing ties to the U.S. Department of Defense, the company is a foundational player whose technology is considered essential to modern infantry tactics. Its flagship product, the Switchblade family of loitering munitions, has become synonymous with the kamikaze drone concept, delivering precision kinetic effects that have proven highly effective on the front lines in Ukraine and other conflict zones. This real-world success is reflected in the company's financials, with recent quarterly revenue up more than 150% year over year.
Some recent stock volatility stemmed from headlines about the U.S. Space Force SCAR program. A closer look suggests this is not a lost contract but a strategic renegotiation intended to establish a firm-fixed-price deal for a commercialized product—an arrangement that could ultimately produce more predictable, stable long-term revenue. In a clear signal of management's confidence in demand, AeroVironment announced a significant expansion of its manufacturing capacity. The move is intended to scale production for anticipated large orders, positioning the company to meet growing needs from the U.S. military and allied partners for its proven systems.
Kratos: Building the High-Tech Future of Air Combat
Kratos Defense & Security Solutions (NASDAQ: KTOS) is carving out a niche as a high-tech innovator focused on next-generation unmanned combat aircraft. The company is a market disruptor with a portfolio of high-performance, attritable jets, including the XQ-58A Valkyrie. These systems are designed to operate as loyal wingmen alongside manned fighter jets, acting as force multipliers by scouting, deploying weapons, and drawing enemy fire—all at a fraction of the cost of a traditional aircraft. This strategy addresses the Pentagon's need to generate mass against near-peer adversaries without breaking the budget.
This ambitious vision requires significant capital, and investors have taken note, sending the stock up more than 200% in the past year. The company recently raised over $1 billion through a public offering. While such a move can create short-term pressure on a stock, it is best understood as a strategic effort to build a war chest. These funds are intended to scale production facilities, accelerate research and development, and strengthen the company's balance sheet to win and execute the multi-billion-dollar program-of-record contracts it is pursuing. Further diversifying its portfolio, Kratos has also secured orders for advanced counter-drone systems, demonstrating capability on both the offensive and defensive sides of unmanned warfare.
Red Cat: The Agile Disruptor Seizing New Domains
Red Cat Holdings (NASDAQ: RCAT) is a smaller, more agile contender in the drone space, focusing on versatile small UAS for ground forces, such as its Teal 2 system, which provides critical night-vision capabilities for individual soldiers. The company has recently captured investor attention not just for its drones, but for a forward-thinking strategy that rapidly integrates advanced third-party capabilities to expand market reach. The stock's year-to-date performance, up over 80%, reflects that enthusiasm.
A key driver of this performance is the announced strategic partnership with Allen Control Systems. This collaboration will integrate Allen Control Systems' Bullfrog AI-powered autonomous weapon station onto Red Cat's platforms. The move accomplishes two critical goals: it propels Red Cat into the lucrative and high-demand Counter-UAS (C-UAS) market, and the initial integration on the company's unmanned surface vessels (USVs) transforms Red Cat from a drone-only company into a multi-domain technology provider for both air and sea. This strategic pivot meaningfully expands the company's total addressable market and outlines a clear path toward rapid growth.
Finding Your Fit in the Drone Sector
Understanding the distinct profiles of these three companies is key to aligning an investment with an individual's financial strategy. Each offers a different level of exposure to the drone-warfare thesis.
- AeroVironment: The Established Leader. With a market capitalization of over $11 billion, AVAV presents a more mature investment profile. Its growth is tied to proven technology and the ongoing need for militaries to procure and replenish tactical loitering munitions.
- Kratos: The High-Tech Innovator. Valued at over $15 billion, Kratos offers a higher-growth profile centered on disruptive, next-generation systems. Its future depends on securing massive, long-term government contracts for advanced attritable aircraft.
- Red Cat: The Agile Disruptor. With a market cap under $2 billion, RCAT represents a higher-risk, higher-reward opportunity. Its smaller revenue base is offset by the potential for rapid expansion, as its strong year-to-date performance suggests progress in markets such as C-UAS and maritime defense.
A Clearer View of the 21st-Century Battlefield
The growth shown by these specialized drone companies is not a fleeting fad but a reflection of a fundamental and enduring shift in military strategy. Large defense conglomerates offer stability, but their size dilutes the impact of any single high-growth sector. For investors seeking direct exposure to the unmanned systems revolution, the distinct profiles of AeroVironment, Kratos, and Red Cat provide a spectrum of compelling opportunities. Collectively, they offer a focused way to participate in the technology-driven future of the defense industry.
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