Shifting Focus in Investment Strategies Towards AI Infrastructure
PROVIDENCE, Rhode Island, Feb 19 (Reuters) – As Wall Street’s fervor for leading artificial intelligence (AI) companies begins to wane, a notable pivot towards infrastructure firms is taking shape.
Investors are increasingly betting on entities that stand to gain from the burgeoning capital expenditures associated with AI, a development that is giving rise to a variety of new financial products.
In the wake of impressive surges in previous years, stock prices of AI titans like Alphabet (GOOGL.O) and Amazon (AMZN.O) have witnessed significant declines.
This downturn has prompted investors to reassess whether the colossal investments directed at advancing AI technologies can truly justify their high valuation levels.
To capitalize on this capital influx, focus has shifted to companies that will receive substantial investments—namely, chip manufacturers, data center builders, and utility providers who form the backbone of the AI ecosystem.
Stocks in this sector, including Caterpillar (CAT.N), optical communications firm Lumentum (LITE.O), and data storage giant Western Digital (WDC.O), have recorded double-digit increases this year.
In stark contrast, the S&P 500 (.SPX) has delivered a mere 0.52% return, while the Roundhill Magnificent 7 ETF (MAGS.Z)—which tracks the performance of leading AI companies—has experienced a decline of 7.3%.
Emergence of New AI Infrastructure Financial Products
This market performance has motivated providers of exchange-traded funds (ETFs) such as BlackRock (BLK.N), VistaShares, and Impax Asset Management to recalibrate their offerings.
They are now launching innovative products that focus on a diverse and increasingly specialized array of AI infrastructure investments.
“Our objective is clear: whenever corporations like Meta or Amazon commit to a new data center, we want to profit across our portfolio,” stated Adam Patti, CEO of VistaShares, which rolled out its Artificial Intelligence Supercycle ETF (AIS.P) in December 2024. The fund has since surged by 58.4% in 2025 and has appreciated by 16.87% thus far this year.
While the ETF includes the prominent AI player Nvidia, its allocation is less than half that of South Korea’s SK Hynix (000660.KS), which supplies chips crucial for data centers. Top holdings in the ETF also feature prominent chipmakers like Micron (MU.O) and Intel (INTC.O).
“When Meta announces a $100 billion investment, these are the companies benefiting,” added Patti.
Similarly, BlackRock’s iShares A.I. Innovation and Tech Active ETF (BAI.P) now allocates 74% of its $8.8 billion in assets to AI infrastructure, up from 59% last year. “This is where the revenues are being generated at present,” remarked Jay Jacobs, BlackRock’s head of U.S. equity ETFs.
Strong performances from holdings such as Fabrinet (FN.N) and Monolithic Power Systems (MPWR.O) have enabled the fund to reach a 3.2% return this year. Over the past twelve months, BlackRock’s fund has attracted $7.9 billion in new capital, as reported by VettaFi.
Recent months have seen the launch of two dedicated infrastructure ETFs alone. Impax Asset Management transitioned one of its mutual funds to create the Impax Global Infrastructure ETF (BLDX.P), while alternatives manager Harrison Street Asset Management initiated a new AI-oriented ETF focused on electrification.
“Ensuring dependable power sources is a critical challenge for establishing the necessary AI data centers,” said Robert Becker, chief investment strategist at Harrison Street.
Ed Farrington, president of North America at Impax, emphasized that infrastructure investments serve as a valuable strategy for diversifying portfolios that have long been heavily concentrated.
Emerging ‘Stealth’ AI Investments
While the Magnificent Seven hyperscalers consistently deliver substantial revenue, analysts contend that this is largely attributable to their core services, which are funding AI-related expenditures anticipated to reach around $630 billion this year.
The hunt for undervalued infrastructure firms poised to reap benefits has led some investors into niche segments of the market.
Ari Sass, president and portfolio manager of M.D. Sass Investor Services identified companies he previously labeled as “stealth” AI investments that are beginning to gain notice, particularly those supplying the immense power necessary for semiconductor production and data centers.
For instance, Quanta Services (PWR.N), which specializes in construction and maintenance for electric utilities, has surged by 24.17% this year.
The Tortoise AI Infrastructure ETF (TCAI.N), launched last October, invests in established firms like Modine Manufacturing (MOD.N), which transitioned from radiator production for agricultural equipment to supplying cooling systems for data centers, showing a share increase of 19.25% this year.
As an influx of investors navigates the AI infrastructure terrain, caution is advised. Many draw parallels with fiber optic companies that faltered after overextending during the internet boom of the 1990s.
“While spending on AI infrastructure is largely funded by financially robust corporations, one must recognize that valuations related to AI are becoming excessive,” cautioned Michael Reynolds, vice president of investment strategy at Glenmede. “Prudent investment practices should be at the forefront of decision-making.”
Source link: Kitco.com.
