Next-generation technologies and artificial intelligence (AI) capabilities are reshaping countries and industries all over the globe. And even if you don't want to directly invest into pure-play AI stocks (which can be expensive and risky), there are ways you can still benefit from AI-related growth.
There's a big opportunity to simply invest in the necessary infrastructure to build out these capabilities. While it can be overwhelming trying to sift through so many tech stocks, there's an exchange-traded fund (ETF) that will give you an easy way to invest into this opportunity: the Global X Data Center & Digital Infrastructure ETF (DTCR +1.00%)
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The fund offers significant growth potential
Demands for power due to AI are massive, especially as large hyperscalers invest heavily in chatbots and AI models that they believe will enhance their products and services, and potentially give them competitive advantages in the long run.
It's a modern-day arms race in tech that is going to require a lot of computing power, and ensuring enough data centers are built and available will be critical. According to projections from analysts at Fortune Business Insights, the global AI data center market will grow at a compounded annual growth rate of 26.8% between now and 2032.
This is where the Global X Data Center & Digital Infrastructure ETF comes into play. Its top three holdings -- American Tower, Digital Realty Trust, and Equinix -- are all involved with data centers and can benefit greatly from this growing trend. Together, they combine for 35% of the fund's total net assets. The ETF has a position in 25 stocks, and over time, that may increase as new companies emerge and existing ones focus more heavily on AI.
The lion's share of the ETF's holdings are technically in real estate stocks (i.e., real estate investment trusts, or REITs), which account for 60% of its portfolio, and tech stocks account for roughly one-third. Geographically, the fund has some exposure to China, with 14% of its holdings being from that market, but the vast majority (70%) are U.S. stocks.
Data by YCharts.
A better way to invest in AI?
The big risk with investing in many popular AI stocks these days is that their valuations have become bloated. Investing in hyped-up stocks that trade at extremely high valuations can limit your future returns and, at worst, could result in losses if there's a correction in the markets. But by investing in less flashy data center and infrastructure stocks, you could position yourself for better gains down the road.
As of Monday's close, the Global X Data Center & Digital Infrastructure ETF has generated returns of around 22% over the past 12 months -- outperforming both the S&P 500 (^GSPC +1.01%) and the Technology Select Sector SPDR Fund over that stretch. And there could still be more upsides ahead. By focusing on the industry's infrastructure needs, you can benefit from the long-term growth due to AI with this ETF, without having to worry about short-term trends or predicting which stock will be the best chipmaker or which chatbot will be the most successful.
As a bonus, the fund will also provide you with a decent dividend that yields 1.7%, which is higher than the S&P 500 average of 1.3%.
Does the Global X Data Center & Digital Infrastructure ETF belong in your portfolio?
For AI and tech investors, it can be a good idea to have exposure to data centers, simply because the long-term growth opportunities look so compelling. And rather than having to focus on individual stocks, you can get some valuable diversification through this ETF. It has been outperforming the market this year, and that's a trend that could continue over the long term.
If you're looking for a potentially safer way to invest in AI, this can be a good buy-and-hold investment to put into your portfolio today.
