Could now be the time to diversify into important tech subsectors? Rate cuts may already be benefiting tech sectors by easing borrowing costs, with more cuts potentially in the offing. While AI has boosted tech stocks significantly in 2024, it may not offer as much upside in 2025. Especially if AI approaches bubble status, many firms may find themselves overvalued. Biotech, instead, could intrigue as an alternative space benefiting from AI as well as some other key trends.
See more: Steady Rate Cuts Feed Surging Biotech ETF SBIO
Biotech investing doesn’t just benefit from decreasing debt costs on their own books. M&A benefits biotech valuations, too, with decreasing borrowing costs helping finance those big moves. Those two factors alone, from a financial perspective, have boosted the outlook of biotech. Elsewhere, the arrival of weight-loss drugs using semaglutide has reinvigorated interest in biotech, as well.
Perhaps most intriguing, however, is how AI can benefit biotech. AI has helped the valuations of the megacap tech firms like Microsoft (MSFT) as well as the “upper middle class” tech firms like, for example, *Hubspot (HUBS). AI’s impact on biotech may be underrated, however, making the space an intriguing undervalued way to play AI’s continued ascension.
The ALPS Medical Breakthroughs ETF (SBIO) offers investors an opportunity to invest in the space. The biotech ETF tracks the S-Network Medical Breakthroughs Index. Charging 50 basis points, the fund, which celebrates its 10th year of operation this month, invests in U.S. biotech firms with drugs in Phase II or Phase III FDA clinical trials. It targets firms meeting financial sustainability goals, with enough cash on hand to last two years.
Together, that approach has helped SBIO return 38% over one year per SS&C ALPS Advisors data. That performance beats the SPDR S&P 500 Trust (SPY ) over that time frame, per YCharts data. Beating that key market indicator, the biotech ETF could present an appealing tech option in the new year.
VettaFi LLC (“VettaFi”) is the index provider for SBIO, for which it receives an index licensing fee. However, [ETF SBIO is 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 SBIO.
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