These days, it sure feels as though the word "bottleneck" is joined at the hip with the artificial intelligence (AI) investment thesis. Indeed, AI adopters and enablers face a variety of logjams that threaten their ambitions.
Data centers, hardware, and power infrastructure rank high on the list of AI constraints, and an array of AI stocks offers investors avenues to capitalize on various AI hurdles. However, not all investors want to engage in stock-picking, and spreading cash across a slew of bets isn't capital-efficient for some market participants.
Select exchange-traded funds (ETFs) solve that problem. Enter: the Defiance AI & Power Infrastructure ETF (AIPO +2.44%). Let's learn more about it.
This ETF taps multiple corners of the AI ecosystem. Image source: Getty Images.
As its name implies, this fund is at the right place at the right time. That's reflected by the fact that this ETF is just 10 months old and already has just over $665 million in assets under management (AUM). Nearly two-thirds of that AUM tally arrived in the fund this year, confirming investors want in on the AI bottleneck story.
AIPO lives up to its billing
Simply because "AI" is attached to an ETF's name doesn't guarantee the fund is adequately levered to the theme. Fortunately, that's not a concern with the Defiance, as it delivers on its promise to address AI and power infrastructure.
The ETF offers a decent level of AI purity, allocating about 20% of its portfolio to semiconductor stocks and data infrastructure names, with Broadcom and Nvidia ranking among the top 10 holdings. The power infrastructure sleeve is where this ETF shines, as it devotes approximately 80% of its portfolio to power grid equipment, engineering and construction services, and utilities stocks.
No, this isn't your grandfather's utilities ETF, but investors should be mindful of the Defiance fund's significant power infrastructure exposure, which is one of the most crucial AI bottlenecks. Due in large part to the demands created by AI, power industry investments surged to $1.5 trillion last year, and a wide array of power sources are being affected by AI, prompting some experts to predict that the infrastructure spending cycle won't just create power, it'll mint new fortunes for smart investors, too.
NASDAQ: AIPO
Key Data Points
Some estimates indicate AI workloads could drive data center electricity consumption to 470 terawatt-hours by 2030, potentially yielding lucrative long-term benefits for companies such as GE Vernova and Eaton, both of which are prime power infrastructure names and top 10 holdings in the Defiance ETF.
Efficiently capitalize on AI bottlenecks
No pun intended, but one of the primary advantages of this ETF is utility. The fund, which is up nearly 46% year to date, holds 77 stocks. That's a fairly deep bench among thematic ETFs and is reflective of the fund's efforts to address multiple themes under one umbrella.
No, this ETF isn't "perfect." Still, it's efficient and relevant, particularly at a time when AI is forecast to prompt the addition of hundreds of terawatt-hours (TWh) of energy consumption over the next several years. That means multiple power sources must be embraced, and grid infrastructure must be enhanced. This ETF leans into those themes and others.
The Defiance AI & Power Infrastructure ETF charges 0.69% per year, or $69 on a $10,000 investment.
