Investors Underweight AI Power Chain: Materials and Energy

Investors hold relatively small positions in the industries that supply power and materials for artificial intelligence infrastructure, according to Paul Baiocchi of SS&C ALPS Advisors. Materials, utilities and energy together represent less than 10% of the S&P 500, while technology, communications and consumer discretionary stocks account for more than half of the index.

Baiocchi presents a four-fund framework to increase exposure to that supply chain. He recommends the ALPS Electrification Infrastructure ETF (ELFY) as the anchor holding, supplemented by the Alerian Energy Infrastructure ETF (ENFR), the ALPS Nautilus SMR, Nuclear & Technology ETF (SMRF) and the ALPS Active REIT ETF (REIT).

ELFY holds companies across multiple industries and sectors that benefit from higher electricity demand. The fund targets firms involved in areas such as data-center power, electric vehicles, industrial automation and appliance electrification, all of which can increase demand for electricity and related infrastructure.

ENFR focuses on natural gas pipeline and storage companies. Natural gas accounts for about 42% of U.S. electricity generation, and pipeline operators are increasingly arranging direct supply deals with data centers rather than relying solely on the traditional utility grid.

SMRF targets companies developing small modular reactors, compact nuclear units that can be connected directly to data centers or industrial sites. REIT provides exposure to real estate investment trusts that own data centers and cell towers; Baiocchi noted that mobile devices typically connect to a tower before traffic reaches a data center, linking tower and data-center real estate to the AI stack.

Baiocchi cited infrastructure spending figures to explain the expected demand. He referenced U.S. grid investment of $115 billion in 2025 and noted that a research firm projects roughly $100 billion a year of grid spending for the next 10 to 20 years. He also pointed to a potential multi-year copper supply deficit if mine production does not keep pace with infrastructure buildout.

Baiocchi summarized the exposure rationale this way: “AI depends on hardware, hardware depends on power, and power depends on natural resources, including copper, steel, and energy commodities.”

As a disclosure, the indexes for ELFY, ENFR and SMRF are provided by VettaFi LLC, which receives index licensing fees. VettaFi is not the issuer, sponsor or seller of those ETFs and has no obligation in connection with their issuance, administration, marketing or trading.

The comments were made during an industry program as investors and portfolio managers weigh whether to increase holdings in industrial and utility assets alongside heavy technology allocations.