AI and Electrification Spark Infrastructure ETF Interest

While artificial intelligence continues to dominate headlines and investor portfolios, a potential rotation into infrastructure and industrial stocks is gaining traction, fueled by policy shifts and evolving consumer trends. Experts suggest these sectors, previously overshadowed by high-growth tech, are poised for a significant surge.

ETF Action’s Mike Atkins highlights a bullish setup taking shape in “old-school infrastructure” and industrial products, sectors that have underperformed in recent years. This prediction comes amid heightened volatility in Big Tech and AI stocks, signaling a possible shift in market sentiment.

“You’re seeing kind of the old-school infrastructure, industrial products that have not done as well over the years,” Atkins noted. “But there’s a big drive… kind of away from globalization into this reshoring concept, and I think that has legs.” This “reshoring concept,” driven by geopolitical uncertainties and a renewed focus on domestic manufacturing, could be a significant catalyst for growth.

Echoing this sentiment, Global X CEO Ryan O’Connor emphasizes the critical role of infrastructure in supporting the AI boom. His firm manages the Global X U.S. Infrastructure Development ETF (PAVE), which tracks companies involved in essential construction and industrial projects. PAVE is the firm’s largest ETF in the market.

“Infrastructure is something that’s near and dear to our heart,” said O’Connor. “We think some of these reshoring efforts… are an interesting one.” The ETF targets companies critical infrastructural support to domestic manufacturing and industry.

Year-to-date, Global X’s infrastructure exchange-traded fund is up 16%, while the VanEck Semiconductor ETF (SMH), a key indicator of AI performance with holdings like Nvidia, Taiwan Semiconductor, and Broadcom, boasts a 42% increase as of Friday’s close. However, the infrastructure ETF is currently outperforming the semiconductor ETF this month. This suggests a potential cooling off of the AI trade, and a parallel rise in the demand and value of supporting industries.

PAVE’s top holdings include Howmet Aerospace, Quanta Services, and Parker Hannifin, according to the firm’s website.

Supporting the AI boom

O’Connor also points to electrification as a key growth driver, suggesting not only the need for AI infrastructure, but that this need will continue into the future, driving demand for supporting industries indefinitely.

“All of the things that are going to be required for us to continue to support this AI boom, the electrification of the U.S. economy, is certainly one of them,” he stated, emphasizing the opportunity presented by the firm’s U.S. Electrification ETF (ZAP), up nearly 24% year-to-date. The fund provides exposure to companies at the forefront of the electrification push, from power generation to grid modernization to energy storage solutions.

This trend reflects a broader understanding that AI’s continued advancement hinges not just on software and algorithms but on the physical infrastructure required to power and sustain it, which is performing a few percentage points better than the VanEck Semiconductor ETF for the month.