Turn to utilities as a way to play the artificial intelligence trend while protecting against the rising geopolitical risks that are shaking the market, Wells Fargo analysts said. Utility stocks, including American Water Works and Exelon , could serve as strong defensive plays as the U.S.-Iran conflict stirs up market volatility, the bank’s analysts said Thursday in a note to clients. “We continue to expect continued relative outperformance over time in a down or up market, risk on or risk off — hence our continued strong stance around the sector: overweight utilities,” Wells Fargo analyst Shahriar Pourreza said in the note. Utilities typically offer dividends, which can help cushion portfolios in rocky markets. “[The sector’s] defensive nature should provide a ‘floor’ given the earnings profile and outperform the broader market during times of uncertainty like the current conflict in Iran as has been the case in past volatile times,” Pourreza said. The utilities sector has historically outperformed the S & P 500 by roughly 780 basis points on average during global conflicts and recessions, the analyst said. XLU .SPX YTD mountain The State Street Utilities Select Sector SPDR ETF (XLU) vs. the S & P 500 in 2026 The group is also a beneficiary of the AI boom, due to data centers’ massive energy demands. “During a period of economic growth [such as] AI build out/industrial restoring, utilities should continue to outperform and benefit from higher infrastructure spend and increased electricity consumption–several utilities now guiding to 8+% [earnings per share] growth, introducing a new wave of incremental investors,” Pourreza wrote. Here are a couple of stocks that Wells Fargo highlighted as ways to manage uncertainty around the war in Iran and play the AI expansion. American Water Works The water utility is poised to gain ground amid the AI boom, according to Wells Fargo. Data center construction has soared in recent months, fueling calls for water companies like American Water Works to help power AI facilities’ operations. Large centers use up to 5 million gallons of water per day to cool their server components and other hardware, according to the Environmental and Energy Study Institute , a non-profit climate change advocacy group. According to Wells Fargo, the pure play regulated water and wastewater stock is also “structurally insulated from macro cycles, commodity volatility, and AI driven load swings,” making it a good defensive play in volatile times. American Water Works’ stock has risen about 8% over the past month. The stock has a current dividend yield of about 2.4%. AWK 1M mountain Shares have risen over the past month. Exelon The electric and natural gas utility could be a good play for investors who still don’t want to miss out on the AI trade. Exelon’s business is composed of 66% electric distribution, 20% electric transmission and 12% gas delivery, offering “durable cash flows insulated from geopolitical shocks, commodity volatility, or demand swings tied to global events,” analysts wrote. The company is also focused on completing reliability upgrades and accelerating transmission needs over the next few years, which will enable it to better serve data center clients, according to Wells Fargo. “With major load growth already materializing (3.3% expected 2026–2029 vs. 0.8% in the prior decade), the company benefits from large‑scale high‑density customers—including data centers—without relying on them to meet its core earnings algorithm,” analysts wrote. Shares have jumped 10% over the past month. The stock’s current dividend yield is at 3.5%. EXC 1M mountain Exelon’s shares have risen over the past month. —CNBC’s Michael Bloom contributed reporting.
This group of stocks is a perfect way to play this fraught market, says Wells Fargo
Mar 5, 2026
