Artificial intelligence infrastructure investing requires looking beyond semiconductors to the physical systems powering the digital revolution, according to Paul Baiocchi, head of fund strategy at SS&C ALPS Advisors.
In an interview at the Exchange conference in Las Vegas, Baiocchi outlined a mosaic approach using three funds to capture different layers of infrastructure growth.
The ALPS Clean Energy ETF (ACES) addresses renewable energy commitments at data centers, while the ALPS CoreCommodity Natural Resources ETF (CCNR) provides raw materials for grid expansion. Meanwhile, the ALPS Electrification Infrastructure ETF (ELFY) targets companies building out transmission capacity.
Data center projects are committing to nearly 100% renewable electricity, positioning clean energy as a tech infrastructure play rather than just a thematic investment, according to Baiocchi. The ACES portfolio holds wind, solar, battery and hydroelectric companies supplying power to facilities driving electricity demand.
Those clean energy companies need raw materials that natural resources firms produce, refine and process. Copper will face a deficit after years of underinvestment in mining capacity, according to Baiocchi. Because transmission and electrification require the metal, CCNR serves as another piece of the infrastructure mosaic.
The Electrification Theme
Beyond data centers, multiple drivers are straining the grid simultaneously. Autonomous vehicle fleets are increasing electricity demand, according to Baiocchi. At the residential level, consumers are switching from gas stoves to induction heating. Heat pumps are replacing traditional HVAC units, while reshoring of supply chains adds further strain on the grid.
“I think most people are starting to come around to the idea that AI data centers aren’t the only driver of rising electricity demand,” Baiocchi said. “You’re stacking on these new drivers, these emerging sources of electricity demand.”
The electrification theme remains under the radar despite growing pressure on generation and transmission capacity, according to Baiocchi. Renewable energy companies represent a small piece of the technology sector, materials firms are a small percentage of the S&P 500, and energy infrastructure is a small slice of an already small sector.
Portfolios are not positioned to capture the trend even as demand drivers stack on top of each other, according to Baiocchi. He said the mosaic approach using ACES, CCNR and ELFY addresses the underexposure by targeting different layers of the infrastructure buildout from power generation through raw materials to transmission capacity.ETF
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