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Solving the Structural AI Power Deficit

BY | ETF Database
11:23 am ET 05/13/26 | 10 VIEWS
Semiconductors and software have largely overshadowed the electrification ETF trade. Paul Baiocchi, head of fund sales and strategy at SS&C ALPS Advisors, says most investors are missing the sectors that actually power the AI buildout.Key Takeaways: Materials, utilities, and energy make up less than 10% of the S&P 500, despite powering the AI buildout. ELFY serves as the anchor holding, with ENFR, SMRF, and REIT as targeted add-ons. Natural gas generates 42% of U.S. electricity and pipelines are increasingly powering data centers directly. On this week’s ETF Prime, Baiocchi argued that AI depends on hardware, hardware depends on power, and power depends on natural resources, including copper, steel, and energy commodities. That chain runs through pockets of the market that most portfolios barely own. See more: ETF Prime: Space & AI Infrastructure in Focus Materials, utilities, and energy together make up less than 10% of the S&P 500. Technology, communications services, and consumer discretionary account for more than 50%. according to Baiocchi. That imbalance, he said, reflects a structural weakness in cap-weighted indexes. Baiocchi pointed to fund manager Rob Arnott, who has long argued that market-cap weighted indexes are “backward looking” and too slow to capture where economic growth is headed, when host Nate Geraci asked why investors shouldn’t simply let indexes catch up over time. Baiocchi said the U.S. spent $115 billion on the grid in 2025. Bloomberg New Energy Finance forecasts roughly $100 billion in annual grid investment for the next 10 to 20 years, he added, citing the firm. Copper supply faces a deficit for years ahead as infrastructure buildout outpaces production, he said.AI Power Demand and the ETFs Behind ItBaiocchi described the ALPS Electrification Infrastructure ETF (ELFY ) as the “anchor” of this broader trade. The fund holds companies across 18 industries and five sectors that benefit from rising electricity demand. AI data centers drive much of that demand, but so do electric vehicles, industrial automation, and appliance electrification, according to Baiocchi. The Alerian Energy Infrastructure ETF (ENFR ) offers a more targeted slice, focusing on natural gas pipelines and storage infrastructure. Natural gas accounts for about 42% of U.S. electricity generation, Baiocchi noted. The segment is increasingly involved in direct deals to power data centers without connecting to the traditional utility grid. For nuclear exposure, the ALPS Nautilus SMR, Nuclear & Technology ETF (SMRF) targets companies developing small modular reactors. These compact nuclear designs can hook directly into data centers or other facilities, according to Baiocchi. Rounding out the framework, the ALPS Active REIT ETF (REIT A-) holds data center and cell tower real estate investment trusts. Baiocchi noted that a mobile ChatGPT prompt must ping a cell tower before reaching a data center, making that infrastructure a direct and often overlooked layer of the AI stack. For more news, information, and analysis, visit the ETF Investing Content Hub. VettaFi LLC (“VettaFi”) is the index provider for ELFY, ENFR and SMRF, for which it receives an index licensing fee. However, ELFY, ENFR and SMRF are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of ELFY, ENFR and SMRF.

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