3 Industries Thriving from the AI Boom and How to Invest with ETFs
The rise of AI is creating exciting investment opportunities beyond tech. Here are a few sectors and ETFs to watch.
The technological landscape is expanding, with Artificial Intelligence (AI) poised to play a crucial role in the next generation of computing. Though Nvidia has been the greatest beneficiary of the current AI wave, some non-technological-focused asset classes benefit from AI’s proliferation and are poised to continue doing so in the future. This article will highlight the indirect investments by which investors can benefit from AI.
Data Center-Focused ETFs
Nvidia’s latest earnings report highlighted the importance of data centers to its long-term growth, as much of the firm’s revenue is derived from them. But what exactly is a data centre? At its simplest, a data center is a physical facility that a organization uses to house its critical applications and data.
A data center’s design is based on a network of computing and storage resources that enable the delivery of shared applications and data. The key components of a data center design include routers, switches, firewalls, storage systems, servers, and application-delivery controllers. Modern data center infrastructure has shifted from traditional on-premises physical servers to virtual networks that support applications and workloads across pools of physical infrastructure and into a multi-cloud environment.
Recently, Nvidia announced a collaboration with several industry peers regarding building AI Factories and Data Centers for the Next Industrial Revolution. In this announcement, NVIDIA founder and CEO Jensen Huang stated, “The next industrial revolution has begun. Companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center — AI factories — to produce a new commodity: artificial intelligence”.
The Data Center Approach
The growth of AI will benefit data center REITs such as Digital Realty, Equinix, and Iron Mountain.
Digital Realty is one of the largest data center operators in the world. In addition to renting space in its facilities to companies to store their networking and storage equipment, Digital Realty also leases entire data center shells to other operators. Digital Realty owns over 300 facilities in 28 countries on six continents and partners with established tech firms, such as Nvidia, Amazon, Microsoft, and IBM.
Equinix is also among the world’s largest digital infrastructure companies, owning and operating a network of 260 International Business Exchange™ (IBX®) data centers in 72 major cities worldwide. Recently, the firm reported first-quarter 2024 results of $2.1 billion in quarterly revenues, marking 85 consecutive quarters of top-line revenue growth, the longest streak of any S&P 500 company.
Finally, Iron Mountain is a familiar name to many, given its storage and information management expertise. The firm has gradually grown its data center capabilities over time. Its platform includes 25+ data centers throughout three continents.
For ETF investors seeking exposure to data centers, the BMO Brookfield Global Real Estate Tech Fund ETF Series (Ticker: TOWR) should be top-of-mind for consideration, as it provides exposure to all three REITs given that its investment objective is to capitalize on the growth of demand for technology infrastructure, including data centers, communications infrastructure, and industrials.
AI's Energy Shift: Clean Power and Critical Minerals
A common realization among firms engaged in AI development is the high energy cost, particularly concerning data centers. Against this backdrop, many firms are exploring clean energy sources, which rely heavily on critical minerals, to power their AI data centers.
Recognizing the high energy requirements for data centers, big tech firms such as Amazon.com Inc, Alphabet Inc., and Microsoft Corp. are among the first to explore using sustainable energy sources, including wind and solar, to power their business operations, such as data centers. Brookfield Asset Management and Brookfield Renewable recently announced a deal with Microsoft for more than $10 billion to develop renewable energy capacity to help power data centers. Under the agreement, Brookfield will deliver 10.5 gigawatts of renewable energy to Microsoft between 2026 and 2030 in the U.S. and Europe. Google has also invested billions in data centers over the last several years, bringing its current total to 23 data centers in 15 states. Amazon Web Services recently acquired a 960-megawatt nuclear-powered data center in Pennsylvania from Talen Energy.
As big tech firms find different avenues to power their data centers, there will be increased demand for the critical minerals needed to generate, transmit, and store cleaner energy. This presents an opportunity for investors, as having material exposure to these essential resources allows them to benefit from the gradual price appreciation that will occur.
Given copper’s importance in electrical transmission, it will play an increasingly important role in clean energy development, which big tech firms need as they pursue their AI objectives. The Global X Copper Producers ETF (Ticker: COPP) provides exposure to the companies active in copper ore mining listed on select North American stock exchanges by replicating the performance of the Solactive North American Listed Copper Producers Index. Using nuclear energy to power data centers means an increasing demand for uranium, a weighty metal that can be used as an abundant source of concentrated energy for nuclear reactors. The Global X Uranium ETF (Ticker: HURA) replicates the performance of the Solactive Global Uranium Pure-Play Index, which provides exposure to companies where a significant part of the business operations is or is expected to be related to the uranium industry.
Takeaway
The boom in AI is not solely beneficial for Big Tech firms or entities directly tied to semiconductor development, as some tangential industries and businesses are also capitalizing on the growth that is occurring and poised to continue in the future.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
