These underperforming groups may deliver AI-electric appeal. Here’s why.
News Summary
Industrial and infrastructure stocks, historically underperforming, are poised to share the spotlight with the artificial intelligence (AI) sector, according to analysts. Mike Atkins of ETF Action sees a bullish setup driven by policy shifts, particularly the trend of reshoring manufacturing away from globalization, and evolving consumer preferences. Ryan O’Connor, CEO of Global X, shares this optimism, highlighting that these sectors are foundational to sustaining the AI boom and supporting the broader electrification of the U.S. economy. His firm's Global X U.S. Infrastructure Development ETF (PAVE) is up 16% year-to-date in 2025, and its U.S. Electrification ETF (ZAP) is up nearly 24%. Although both PAVE and the VanEck Semiconductor ETF (SMH) have seen declines this month, PAVE and ZAP have outperformed SMH during this period. SMH, which includes AI leaders like Nvidia and Taiwan Semiconductor, boasts a 42% year-to-date gain. Top holdings in PAVE include Howmet Aerospace, Quanta Services, and Parker Hannifin, indicating a focus on core industrial and construction plays.
Background
The current U.S. political landscape, with President Trump re-elected in November 2024, is characterized by continued emphasis on "America First" policies and the reshoring of manufacturing, which is expected to drive domestic investment. Over the past few years, technology giants like Nvidia and other AI-related stocks have experienced significant appreciation, becoming market darlings. This growth has been fueled by immense expectations for AI's future potential and the consequent demand for data centers and power. Concurrently, the U.S. in the mid-2020s continues to pursue infrastructure modernization and economic electrification initiatives. These projects aim to improve transportation networks, upgrade the power grid, and support the proliferation of electric vehicles and renewable energy. Traditional industrial and infrastructure sectors, while foundational to the economy, have seen relatively subdued market performance compared to high-growth tech segments like AI and semiconductors.
In-Depth AI Insights
Is the investment appeal of infrastructure and electrification sectors being underestimated amidst the AI boom? - Yes, the market may be underestimating the critical role these "old economy" sectors play in enabling "new economy" growth. The explosive growth of AI demands immense computing power, which in turn places unprecedented strain on electricity supply, data center construction, and cooling systems. Electrification likewise requires massive infrastructure upgrades, including smart grids, transmission networks, and charging stations. - These investments are not short-term fluctuations but long-term structural trends. The continued reshoring policies under the Trump administration provide stable policy support for industrial and infrastructure, while the demand for foundational infrastructure from AI and electrification is an inevitable consequence of technological progress. Compared to the high valuations of AI chip companies, these sectors may offer more defensive and predictable cash flows. To what extent does the "AI-electric appeal" of these sectors serve as a hedge against high-tech valuation risks in the current market environment? - This appeal can be seen as a defensive strategy aimed at balancing the volatility and valuation risks associated with highly concentrated AI tech stocks. When AI and semiconductor sectors experience pullbacks, infrastructure and electrification stocks may demonstrate greater resilience due to their more stable earning models and reliance on tangible assets. - By allocating to these sectors, investors can benefit from the structural growth driven by AI and electrification while mitigating the direct exposure to highly valued tech stocks. This is a "picks and shovels" approach to a gold rush, investing in the fundamental materials and services required to support the technological revolution rather than directly in the high-risk, sentiment-driven "gold miner" companies. How will the reshoring policy evolve to impact these "old economy" sectors in the long term? - Reshoring is more than a short-term political slogan; it's a long-term response to global supply chain vulnerabilities, geopolitical risks, and national security considerations. The Trump administration's continued push will ensure that related investments remain robust for the foreseeable future. - In the long term, this will lead to a sustained expansion of domestic industrial capacity in the U.S., creating continuous demand for factory construction, machinery, energy infrastructure, and logistics networks. This will not only boost the performance of industrial and infrastructure sectors but also create new job opportunities and enhance the resilience of the U.S. economy. The growth of these sectors will become more closely tied to domestic macroeconomic policies and capital expenditure cycles, rather than solely relying on the benefits of globalization.