U.S. Investors Shift Toward Infrastructure as AI Giants Sell Off

By Suzanne McGee

PROVIDENCE, Rhode Island, Feb 19 (Reuters) - As Wall Street's love affair with artificial intelligence heavyweights cools, some investors are pivoting to infrastructure companies they expect to benefit from AI capital spending, a shift that is spawning a slew of new products.

After huge gains in recent years, shares in AI tech giants such as Alphabet and Amazon have suffered sharp declines as investors worry returns from their massive investment in developing smarter AI systems won't justify such lofty valuations. To profit from that spending spree, investors are focusing on the companies getting the checks -- chipmakers, data center builders and utility firms providing the physical nuts and bolts behind the AI revolution, say asset managers. 

 Many such stocks, including Caterpillar , optical communications provider Lumentum and data storage company Western Digital have posted double-digit gains this year, while the S&P 500 has returned 0.52% and the Roundhill Magnificent 7 ETF, which captures the performance of the so-called AI hyperscalers, has lost 7.3%. 

Investor Rotation to AI Infrastructure

NEW AI INFRASTRUCTURE PRODUCTS

ETF Launches and Strategies

That performance is spurring exchange-traded fund providers such as BlackRock, VistaShares and Impax Asset Management to rejig their offerings and launch new products, with some betting on a diverse -- and increasingly niche -- roster of AI infrastructure plays.

VistaShares portfolio approach

"Our goal is that every time someone like Meta or Amazon invests in a data center, the cash registers ring across our portfolio," said Adam Patti, CEO of VistaShares, which launched its Artificial Intelligence Supercycle ETF in December 2024. It gained 58.4% in 2025 and is up 16.87% this year. 

Nvidia vs. SK Hynix weights

While the ETF includes AI heavyweight Nvidia, the semiconductor giant's weighting is less than half that of South Korea's SK Hynix, whose chips are used in data centers. The ETF's other top holdings include chipmakers like Micron and Intel. 

"When Meta says that it’s going to spend $100 billion, it's going into these companies," said Patti.

BlackRock allocations and flows

Likewise, BlackRock's iShares A.I. Innovation and Tech Active ETF now has 74% of its $8.8 billion in assets invested in AI infrastructure plays, ranging from chipmakers that train AI models to power companies, up from 59% a year ago. That's "where the revenues are right now,” said Jay Jacobs, BlackRock's U.S. head of equity ETFs. 

Healthy returns from holdings like Fabrinet and Monolithic Power Systems have boosted the fund's returns to 3.2% this year. The BlackRock fund has pulled in $7.9 billion in new capital over the last 12 months, according to data from VettaFi. 

Impax and Harrison Street debuts

Two infrastructure ETFs launched this month alone. Impax Asset Management converted one of its mutual funds into the Impax Global Infrastructure ETF, while alternatives manager Harrison Street Asset Management launched an AI-related ETF focusing on electrification. 

Power Constraints and Utilities

"Securing reliable power sources is one of the biggest constraints in moving forward with all the AI data centers needed," said Robert Becker, chief investment strategist at Harrison Street. 

Ed Farrington, Impax's president of North America operations, said infrastructure was a way to diversify overall equity portfolios as well as what has for years been a highly concentrated trade.

"STEALTH" AI PLAYS

To be sure, the Magnificent Seven hyperscalers have delivered consistently strong revenues, but investors say that is mostly thanks to their core businesses, which are funding AI capital expenditures. That spending will be around $630 billion this year alone. 

Stealth AI Plays and Niche Bets

The quest to identify underpriced infrastructure companies set to benefit is leading some investors to niche corners of the market. 

Ari Sass, president and portfolio manager of M.D. Sass Investor Services, said companies he once thought of as “stealth" AI plays are moving into the spotlight, such as companies helping to deliver the tremendous amount of energy needed to power semiconductor fabrication plants and data centers.

Quanta Services performance

Quanta Services , which provides construction and maintenance services for electric utilities, is up 24.17% so far this year, for example. 

Modine Manufacturing exposure

The Tortoise AI Infrastructure ETF launched in October, meanwhile, invests in companies like century-old Wisconsin-based Modine Manufacturing which started out manufacturing radiators for farm equipment and has since pivoted to providing data center cooling systems. Its shares are up 19.25% so far this year.

Risks and Valuation Concerns

As more investors pile into the AI infrastructure trade, some are sounding warnings. They point to the fiber optic network companies that collapsed after over-investing to support Internet firms in the 1990s as a cautionary tale.

"It looks as if the spending on AI buildout is coming from financially stronger companies, but at the same time, valuations for anything with AI exposure are getting a bit rich," said Michael Reynolds, vice president of investment strategy at Glenmede. "Everyone needs to exercise some caution."

(Reporting by Suzanne McGee in Providence, Rhode Island, editing by Michelle Price and Deepa Babington)