(Bloomberg) -- It’s the latest trade in the buzzy world of thematic ETF investing: Energy companies that are riding the AI revolution.
While thematic ETFs have fallen out of favor in the past few years, a pair of new funds want to lure in investors with a slate of electricity firms riding incessant power demand, fueled by the artificial intelligence boom.
Issuer Global X last week filed for its U.S. Electrification ETF, which would track an index of conventional companies in the sector, as well as those involved in alternative or cleaner energy sources — such as wind and solar — and grid infrastructure firms. Fund firm Tema also recently submitted paperwork for an ETF that would invest in companies “tied to global electrification.”
To Tom Essaye, president and founder of Sevens Report and a former Merrill Lynch trader, the theme is reminiscent of the entrepreneurs who sold tools to fortune-seekers during the California gold rush.
“It’s like a gold rush with AI — the people who made the most money out of the gold rush were those who sold the picks and shovels, and these are absolutely the picks and shovels,” he said. “It is absolutely a tangential AI play.”
The ETF applications landed right around when Constellation Energy Corp. made known plans to invest $1.6 billion to revive the shuttered Three Mile Island nuclear plant to meet Microsoft Corp.’s energy needs for AI. Constellation — alongside power plant owner Vistra Corp. and Nvidia Corp. — is now one of the best-performing stocks in the S&P 500 Index this year.
“Lately, investors are looking at utility stocks — particularly electricity companies — to support the AI boom since AI data centers have significant power needs,” said Roxanna Islam, head of sector and industry research at TMX VettaFi. “Since both issuers are very active in the thematic space, these will likely serve as a thematic play with AI as a significant demand driver.”
While AI has been one of the top investing targets of late, ETFs chasing trends or niche investing topics have struggled as investors grew wary. They’ve pulled nearly $9 billion from thematic ETFs so far this year, after notching outflows of $4.5 billion last year as well, data compiled by Bloomberg Intelligence shows.
Still, AI companies are projected to be significant power-gobblers as the industry evolves. Greater adoption of electric vehicles could further fuel demand and benefit the ETFs that hold the stocks set to gain from the trends.
New data centers are materializing across the globe at a rapid clip, with power demand in the US alone expected to grow by 40% over the next two decades, according to one estimate reported by Bloomberg.
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