Thematic ETFs may have fallen out of favor in recent years, but the intersection of electrification and AI is sparking renewed interest in the sector. Issuer Global X recently filed for its U.S. Electrification ETF, targeting companies that meet growing electricity demands fueled by the artificial intelligence boom. This includes traditional energy firms, alternative energy providers, and companies building grid infrastructure. Similarly, Tema has introduced an ETF focused on firms tied to global electrification, underscoring the rising demand for power to support AI data centers and related technologies.
Tom Essaye, president of Sevens Report, likens the electrification trend to the gold rush, where those selling tools, or “picks and shovels,” reaped the most rewards. In this case, electricity companies are the critical players, powering the AI revolution as demand for data centers increases. Companies like Constellation Energy, which is investing $1.6 billion to revive the Three Mile Island nuclear plant to power Microsoft’s (MSFT) AI operations, exemplify how utilities are positioning themselves to benefit from AI’s massive energy consumption.
Market Overview:- Global X and Tema have filed for new ETFs focusing on companies driving global electrification.
- Electricity demand is growing, driven by AI and data centers, as well as electric vehicle adoption.
- Thematic ETFs have seen $9 billion in outflows this year, despite the AI boom.
- Constellation Energy is investing $1.6 billion in nuclear energy to support Microsoft’s AI operations.
- Vistra and Nvidia (NVDA) are among the top-performing stocks in the S&P 500 this year.
- Electricity companies are becoming key players in AI infrastructure due to their power-supplying capabilities.
- Power demand in the U.S. is expected to grow by 40% over the next two decades, supporting electricity companies.
- AI data centers will continue driving energy demand, benefiting electrification-themed ETFs.
- Investors are keeping an eye on utilities as crucial players in the AI and energy sectors.
Looking ahead, AI’s surging energy needs are projected to further boost electricity companies and the thematic ETFs tied to electrification. The growing global demand for data centers, combined with the rise of electric vehicles, will likely keep energy providers at the forefront of the AI revolution. As companies like Constellation Energy (CEG) and Vistra (VST) expand their infrastructure to meet this demand, electrification ETFs may prove to be valuable long-term plays for investors looking to capitalize on AI-driven energy trends.
However, challenges remain for thematic ETFs as a whole. Despite the optimistic outlook for electrification, the sector has seen $9 billion in outflows this year, with investors increasingly cautious about niche investment strategies. Whether the AI boom can reverse this trend will be key in determining the success of electrification-themed funds in the coming years.
