Artificial intelligence is transcending its traditional role as a niche technology and is now significantly influencing energy markets, infrastructure, and investment strategies. Experts on this week's episode of CNBC's 'ETF Edge' urge investors to widen their focus beyond chips and software to recognize the evolving areas of value creation.
One of the critical factors driving these changes is AI's physical infrastructure needs, which include power, cooling, and efficiency in data centers. For instance, Bloom Energy, known for its onsite fuel cells, experienced a dramatic rise in stock value by over 500% after data centers began placing substantial orders, illustrating the growing demand for efficient energy solutions.
The shifting landscape creates significant opportunities in small- and mid-cap companies, according to Jennifer Grancio from TCW Group. These firms, often in niche markets with little competition, are rapidly growing in market capital due to fundamental improvements.
Energy reliability has become paramount as renewable energy costs decrease, leading to a reevaluation of energy sources. Grancio notes, 'AI has changed the conversation,' since data centers now demand a more constant power supply, resulting in a shift towards nuclear energy investment and the emergence of small modular reactors.
Grancio, along with other ETF specialists, highlights the importance of efficient data center management. Given the increase in AI workloads, cooling and power have become crucial bottlenecks. Consequently, investors seek companies that lead in their respective fields, providing an 'operating leverage' in markets concentrated with few dominant providers.
This dynamic fuels the interest in actively managed ETFs, capable of identifying and supporting scalable companies earlier than passive indices. However, VanEck CEO Jan van Eck warns of possible volatility, especially as some AI-related sectors involve financially vulnerable companies.
Given these risks, Van Eck suggests a balanced approach, advising against over-concentration on any single AI theme within portfolios. He shares insights into managing nuclear ETFs, describing recent market adjustments that have resulted in more attractive entry points for investors.
ETF experts recommend that by 2026, as AI themes become more prominent in portfolio strategies, investors should employ active rebalancing and set clear risk expectations to avoid chasing market highs or fearing declines.