Disruptive Theme of the Week: ETF Plays on the Stargate Project

The joint venture will include investment from companies SoftBank, OpenAI, Oracle, and UAE-backed investment firm MGX with Arm, Microsoft, Nvidia, Oracle, and OpenAI as the key technology partners. There are several unanswered questions about the project. These include how to power all these data centers. Investors are already trying to figure out a way to get exposure. Here are some ETFs to consider.

There are several ETFs that provide exposure to data centers and the digital infrastructure companies that will be the target of Stargate’s AI infrastructure investment. These include the Pacer Data and Infrastructure ETF (SRVR C+), the Global X Data Center &  Digital Infrastructure ETF (DTCR A), and the iShares U.S. Digital Infrastructure and Real Estate ETF (IDGT B+). A lot of data centers are structured as REITs as they lease their properties to tenants.

Here is a comparison in the table below of the Data Center ETF options available.

Another theme expected to benefit from infrastructure investment in AI is, of course, AI itself. Artificial intelligence is a ubiquitous technology that Markets and Markets expects to grow at a CAGR of 35.7% from $215 billion in 2024 to $1.3 trillion by 2030. The administration’s public/private partnership to boost AI infrastructure is aimed at helping position the U.S. at the forefront of AI technology and its applications.

There are many AI-technology-focused ETFs. These include the WisdomTree Artificial Intelligence and Innovation Fund (WTAI B+) and the ROBO Global Artificial Intelligence ETF (THNQ B-), which are already up 8.8% and 7.4%, respectively, boosted by the Stargate announcement.

Another area of the market that has been soaring, helped by the Stargate announcement, are quantum computing stocks. Alphabet’s Google announced a breakthrough quantum computing chip called Willow in December that has caused a resurgence of investor enthusiasm. The Stargate announcement does not specifically address quantum computing. But AI and quantum technologies go hand in hand. And quantum is expected to drive further developments in AI.

There is currently only one ETF that targets quantum computing, the Defiance Quantum Computing ETF (QTUM A+). It recently surpassed $1 billion in assets under management. That’s a testament to growing momentum behind the theme. The ETF is also up over 50% on a one-year basis.

I have written about this before in an article back in October aptly titled Wow to  Power Your Data Center. But one of the key obstacles that must be addressed to support AI infrastructure is how to generate the power to support these energy intensive technologies. That’s particularly so with newly announced moratoriums on alternative energy sources such as wind and solar.

Goldman Sachs says AI is poised to drive a 160% increase in power center demand. Because of that, domestic utility companies will need to invest at least $50 billion in new generation capacity to satisfy the demand from just data centers. Outside the U.S., Goldman expects Europe will need $1 trillion-plus in investment to modernize its grid for the demand expected from AI.

Some relevant ETF plays that provide exposure to Electric Infrastructure include the First Trust NASDAQ Clean Energy Smart Grid Infrastructure ETF (GRID A) and Global X’s new ETF offering, the Global X U.S. Electrification ETF (ZAP ). GRID has now amassed $2.2 billion in assets under management. And ZAP, which just launched on December 17, is already at $75 million in AUM. That’s on top of the success of the Global X U.S. Infrastructure Development ETF (PAVE B), which now holds $9.2 billion.

Other ways to power your data center include midstream expansion with natural gas and nuclear energy. This is  specifically the case with small modular nuclear reactors. The Alerian Energy Infrastructure ETF (ENFR ) provides exposure to midstream energy companies likely to benefit from rising data center power demand. The VanEck  Uranium and Nuclear ETF (NLR C) and the Range Nuclear Renaissance ETF (NUKZ ) are two ETFs that provide exposure to nuclear power. Both of these ETFs have already delivered some nuclear returns YTD, up 18.3% and 25%, respectively.

The Stargate Project announcement is high on intention. But it’s light on specifics, like how to fully fund the project and provide the required power and water. Yet clearly there is an ongoing need for AI infrastructure, which in turn is sparking investor enthusiasm.

The U.S. already has the largest private investment in AI, vastly outspending the rest of the world and ahead of the second largest investor China by 8.7X, according to a Stanford University report. And now there is a rising recognition that we also need a large investment in the infrastructure to support it.

VettaFi LLC (“VettaFi”) is the index provider for THNQ and ENFR for which it receives an index licensing fee. However, THNQ and ENFR 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 THNQ or ENFR.

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