This Power Infrastructure ETF Is Crushing the QQQ This Year

It’s not just the big hyperscalers, semiconductor plays, or other data center builders that stand to benefit from the AI revolution. Undoubtedly, memory chips, storage drives, and, of course, AI chips may hold back the AI boom a bit, at least over the medium term. That said, power stands out as another serious bottleneck that the big AI firms will need to address, hopefully sooner rather than later, for the sake of investors heavy on the AI names as they skate through a bit of volatility this February. In any case, power still stands out as an area that the big AI spenders are going to need to address.

Of course, some firms, like Oracle (NYSE:ORCL | ORCL Price Prediction), have taken power into their own hands by rolling up their sleeves to tackle the power problem with small nuclear reactors (SMRs) and strategic partnerships to bridge the power gap, so to speak. Whether it’s renewables (wind, solar and nuclear), natural gas or anything else, tomorrow’s AI data centers are going to be increasingly power hungry. And that makes power a top bottleneck in the rise of AI.

Of course, numerous power plays have already been bid higher in recent years, thanks in part to the great multi-year (or multi-decade) AI tailwind. But valuations, at least for the most part, still don’t seem remotely outlandish, especially considering their potential for growth.

iShares U.S. Power Infrastructure ETF

The iShares U.S. Power Infrastructure ETF (NYSEARCA:POWR) stands out as a great one-stop shop play for investors looking to play the AI boom from the power side. The expense ratio is at 0.40%, which might seem a bit high for a sector or industry ETF, especially one with such a narrow focus. Still, there’s a lot to love about the ETF, especially as they continue to consolidate. The big question is when AI enthusiasm will spark some sort of upside breakout. It is hard to believe that shares of the ETF are pretty much where they were in the early part of 2022.

So, from a long-term perspective, the ETF has been left behind for the most part. More recently, though, the ETF is starting to flex its muscles, with shares now up just shy of 6% year to date. Meanwhile, the S&P 500 is up over a single percentage point while the Nasdaq 100 is down by a fraction of a percent. In any case, the iShares U.S. Power Infrastructure ETF isn’t just another utility ETF to play defense with; it has holdings in higher-growth power infrastructure firms necessary for readying the grid for an AI boom. 

Under the hood, close to 35% of the iShares U.S. Power Infrastructure ETF is in electric utilities, with 18% in electric components. Undoubtedly, the power infrastructure industry is quite broad, and the ETF seems to do a great job of touching most bases.

At the top of the ETF are names like high-flying turbine maker GE Vernova (NYSE:GEV), which has been a huge year-to-date gainer, up close to 17%. NextEra Energy (NYSE:NEE) is another big name in the ETF that has contributed to the ETF’s S&P-topping year-to-date gain, with shares up just over 12% so far this year.

The Bottom Line

While it might be a bit too soon in the game to play the ETF for a breakout, I do think investors have plenty of incentive to stay patient. There’s the 2.8% dividend yield as well as a 0.40 beta, which could entail a smoother ride, especially if AI causes some parts of tech (most notably software) to wobble a bit more going into year’s end.