Defiance launches AI Hyperscale Leaders ETF

Defiance launched the Defiance AI Hyperscale Leaders ETF (AIHY) on July 21. The actively managed ETF carries an expense ratio of 76 basis points and targets companies that derive at least 50% of their revenue, assets or capital spending from AI development and that are increasing revenue and profitability from the AI infrastructure buildout.

Holdings must report revenue growing faster than operating expenses, positive year-over-year revenue growth and a positive gross profit margin based on the most recent fiscal quarter. The fund aims for a concentrated portfolio of 10 to 50 constituents; five holdings currently account for more than 90% of the fund’s allocations.

Amazon is the largest holding at a 20.05% weight, included primarily for Amazon Web Services. Defiance notes AWS is expected to direct roughly $200 billion toward AI infrastructure development in 2026. Amazon reported about 17% year-over-year revenue growth and a gross margin near 52% in the first quarter.

Hyperscalers are increasing capital spending to build the compute capacity needed for large AI models. UBS projects hyperscaler spending on AI development will rise from $637 billion in 2026 to $843 billion in 2027. That shift toward capital-intensive physical infrastructure has raised demand for companies that supply or operate large-scale compute and data-center assets.

Analysts warn free cash flow for major hyperscalers is under pressure. T. Rowe Price analysis indicates rolling 12-month free cash flow for these hyperscalers could approach zero by early 2027 if spending continues at current rates. Analysts say upcoming second-quarter earnings reports will be monitored for evidence that companies can monetize AI investments quickly enough to support rising capital expenditures.

AIHY focuses on firms whose AI-related investments are producing growing revenues and positive margins rather than broad-market AI exposure. The fund’s active management and concentrated weightings prioritize recent financial performance and profitability metrics during the AI infrastructure buildout.