It’s certainly no secret that that many of the largest tech companies in the world have spent billions of dollars each year to rapidly scale up their artificial intelligence operations.
However, the question remains: when will all of this capital expenditure (CapEx) start to see a significant payoff? Fortunately, recent insights from Alger indicate that payoff could potentially be on the horizon.
The chart below shows the current and projected aggregate capital expenditure (CapEx) and operating cash flow for the five largest AI hyperscalers (i.e., major cloud service providers): Microsoft, Amazon, Meta, Alphabet, and Oracle. As the chart shows, CapEx growth is projected to slow down significantly in the coming years, while operating cash flow is expected to increase steadily.
Even now, these companies are beginning to deliver increasingly positive results from their AI operations. Alger’s research notes that in June 2025 earnings reports, both Microsoft and Meta cited AI as a notable contributor to revenue growth.
Keeping this in mind, we believe it may make sense for advisors and investors to gain focused exposure to a variety of AI-related companies within their portfolio. This opportunity set extends far beyond the companies developing the AI models. Companies involved in AI infrastructure like GPU manufacturing, networking and power generation, as well as companies implementing AI across their operations may also benefit from rising AI adoption.
Fostering a Long-Term AI Position
For those looking to build a more wholesale approach to AI investing, the Alger AI Enablers & Adopters ETF (ALAI) could be great way to gain diversified AI exposure. ALAI invests in a portfolio of companies that are well positioned to benefit from rising AI adoption. This includes companies like AppLovin, TSMC, and Talen Energy, among many others.
To maximize long-term growth potential, ALAI’s investment team employs a fundamental, bottom-up approach for selecting high conviction stocks. This process focuses on identifying and capitalizing on Positive Dynamic Change by investing in innovative companies poised for sustainable growth. Specifically, ALAI focuses on companies experiencing either “High Unit Volume Growth,” where industry leaders benefit from surging demand, or “Positive Life Cycle Change,” characterized by transformative events such as significant product innovations or meaningful shifts in industry dynamics. While AI continues to accelerate secular growth themes such as cloud computing, eCommerce, and social media, it is also creating compelling Life Cycle Change opportunities within traditionally less dynamic sectors like Industrials and Utilities.
By focusing on companies harnessing new AI innovations, the strategy seeks to position investors to benefit as adoption broadens. As an actively managed fund, ALAI gives the investment team flexibility to reassess exposures and reallocate as fundamentals and market conditions evolve.
Regardless, it’s clear the path toward AI innovation is far from finished. With OpenAI further raising the stakes, ALAI could prove itself to be beneficial for capitalizing on sector growth.
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Click here for more information on the Alger AI Enablers & Adopters ETF.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of August 2025. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Holdings and sector allocations are subject to change. Past performance is not indicative of future performance.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors, and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI technology could face increasing regulatory scrutiny in the future, which may limit the development of this technology and impede the future growth. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology. A significant portion of assets will be concentrated in securities in related industries, and may be similarly affected by adverse developments and price movements in such industries. A significant portion of assets may be invested in securities of companies in related sectors, and may be similarly affected by economic, political, or market events and conditions and may be more vulnerable to unfavorable sector developments. Investing in companies of small and medium capitalizations involves the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. The Fund is classified as a “non-diversified fund” under federal securities laws because it can invest in fewer individual companies than a diversified fund. Private placements are offerings of a company’s securities not registered with the SEC and not offered to the public, for which limited information may be available. Such investments are generally considered to be illiquid. Foreign securities involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility. ADRs and GDRs may be subject to international trade, currency, political, regulatory and diplomatic risks. Active trading may increase transaction costs, brokerage commissions, and taxes, which can lower the return on investment. At times, cash may be a larger position in the portfolio and may underperform relative to equity securities.
Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks. There will be winners and losers that emerge, and investors need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities.
ETF shares are based on market price rather than net asset value (“NAV”), as a result, shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). The Fund may also incur brokerage commissions, as well as the cost of the bid/ask spread, when purchase or selling ETF shares. The Fund faces numerous market trading risks, including the potential lack of an active market for Fund shares, losses from trading in secondary markets, periods of high volatility and disruption in the creation and/or redemption process of the Fund. Any of these factors, among others, may lead to the Fund’s shares trading at a premium or discount to NAV. Thus, you may pay more (or less) than NAV when you buy shares of the Fund in the secondary market, and you may receive less (or more) than NAV when you sell those shares in the secondary market. The Manager cannot predict whether shares will trade above (premium), below (discount) or at NAV. The Fund may effect its creations and redemptions for cash, rather than for in-kind securities. Therefore, it may be required to sell portfolio securities and subsequently recognize gains on such sales that the Fund might not have recognized if it were to distribute portfolio securities in-kind. As such, investments in Fund shares may be less tax-efficient than an investment in an ETF that distributes portfolio securities entirely in-kind. Brokerage fees and taxes will be higher than if the Fund sold and redeemed shares in-kind. Certain shareholders, including other funds advised by the Manager or an affiliate of the Manager, may from time to time own a substantial amount of the shares of the Fund. Redemptions by large shareholders could have a significant negative impact on the Fund.
Fred Alger Management, LLC uses the Global Industry Classification Standard (GICS®) for categorizing companies into sectors and industries. GICS® is used for all portfolio characteristics involving sector and industry data such as benchmark, active and relative weights and attribution. The Global Industry Classification Standard (GICS®) is the exclusive intellectual property of MSCI Inc. (MSCI) and Standard & Poor’s Financial Services, LLC (S&P). Neither MSCI, S&P, their affiliates, nor any of their third party providers (“GICS Parties”) makes any representations or warranties, express or implied, with respect to GICS or the results to be obtained by the use thereof, and expressly disclaim all warranties, including warranties of accuracy, completeness, merchantability and fitness for a particular purpose. The GICS Parties shall not have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of such damages. Sector and industry classifications are sourced from GICS. Historical classifications use GICS categories available as of the date of this presentation.
Alger pays compensation to VettaFi to sell various strategies to prospective investors. FactSet is an independent source, which Alger believes to be a reliable source. FAM, however, makes no representation that it is complete or accurate.
The following positions represented the noted percentages of ALAI assets as of May 31, 2025: Alphabet Inc. Class C: 2.25%; Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored Adr: 3.86%; Tesla, Inc.: 2.95%; Microsoft Corp., 9.10%; Meta Platforms, Inc., 7.24%; Oracle, 0%; Amazon.com, Inc., 9.66%; Applovin Corp., 4.91%; Talen Energy Corp., 4.57%; and OpenAI, 0%.
Before investing, carefully consider a Fund’s investment objective, risks, charges, and expenses. For a prospectus and summary prospectus containing this and other information or for a Fund’s most recent month-end performance data, visit www.alger.com, call (800) 992-3863 (for a mutual fund) or (800) 223-3810 (for an ETF), or consult your financial advisor. Read the prospectus and summary prospectus carefully before investing. Distributor: Fred Alger & Company, LLC. All underlying series of The Alger ETF Trust listed on NYSE Arca, Inc. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.
