Data Center Spending to Hit $580B: Buy 3 ETFs to Ride the AI Boom

The explosive expansion of data centers, driven by rising AI adoption, is not only transforming the digital landscape but also shifting global capital flows and opening a major investment opportunity. According to the International Energy Agency’s (“IEA”) latest World Energy Outlook report, global investment in data centers is expected to hit $580 billion in 2025, overtaking the $540 billion projected for global oil supply. 

This extraordinary milestone is more than a financial statistic — it marks a sea change in the nature of modern economies, where digital infrastructure and electricity are becoming the primary fuels of productivity.

For investors, this seismic shift from traditional energy infrastructure to digital refineries makes a compelling case for gaining exposure through AI-focused exchange-traded funds (ETFs).

Now, before suggesting a few ETFs that you may consider adding to your portfolio to capture notable gains from the AI boom in the coming days, let us first explore why we recommend ETFs over individual stocks and whether AI still holds the potential to deliver the profitable returns it promises.

Why Choose ETFs Over Individual AI Stocks?

The recent market volatility underscores why ETFs represent a smarter approach to AI investing than individual stock selection. While companies like NVIDIA NVDA, Palantir PLTR and Micron Technology MU have been dominating headlines in the AI industry, they carry significant single-stock risks, including the possibility of earnings misses, competitive pressures and regulatory hurdles.

The volatile market movement witnessed in the U.S. stock market over the past week, much of it driven by tech stock pullbacks ahead of NVIDIA’s fiscal third-quarter earnings, illustrates how concerns about AI overvaluation can make investors anxious and trigger sell-offs. This pattern underscores the case for AI ETFs as safer alternatives, providing instant diversification by spreading risks across dozens of companies involved in the entire AI supply chain, from semiconductor manufacturers and data center builders to software developers.

By investing in an ETF, you can bet on the macro trend (the data center build-out confirmed by the IEA) rather than the fate of a single company, offering a cushioned path for long-term growth and protection against single-stock corrections.

Is AI-Driven Data Center Expansion the Next Oil Boom?

Data infrastructure is rapidly achieving economic significance comparable to, and potentially surpassing, traditional oil markets. While oil remains a major global energy source, the transition to a digital economy is accelerating at an extraordinary pace. The IEA’s projection mentioned above further strengthens this fact. 
It is imperative to mention that major tech stocks, Alphabet GOOG, Meta Platforms META, Microsoft MSFT and Amazon AMZN, have raised their capital expenditure guidance recently and now collectively expect to spend more than $380 billion this year, as they race to build out infrastructure to meet the virtually limitless demand for AI services (as stated in a press release by CNBC).

Although the concern of overvaluation in the AI industry remains, triggering recurring fears of a market bubble, major financial institutions argue that the industry’s foundation is solid. To this end, It is important to note that analysts from Goldman Sachs and J.P. Morgan have acknowledged elevated valuations but also emphasized that, unlike during the Dot-Com bust, today’s AI leaders have strong fundamentals, substantial revenues, and are essential to corporate efficiency.

While the majority of market experts boast a cautious outlook toward the industry and admit that the AI build-out requires huge, persistent revenue generation, the general consensus is that the long-term, productivity-boosting potential of AI is a generational disruption, not a classic bubble.

AI-centric ETFs to Buy

The above discussion creates a compelling investment case for AI ETFs, a few of which are outlined below and may be added to your portfolio to broaden and strengthen your exposure to the overall AI ecosystem.

VanEck Semiconductor ETF SMH

This fund, with total net assets worth $35.52 billion, offers exposure to 26 companies involved in semiconductor production and equipment. Its top five holdings include tech giants — NVDA (18.38%), Taiwan Semiconductor (9.59%), and Broadcom (8.28%), MU (6.60%) and Advanced Macro Devices (AMD) (6.48%). 

SMH has surged 40.2% year to date. The fund charges 35 basis points (bps) as fees. It currently sports a Zacks ETF Rank of 1 (Strong Buy). 

Technology Select Sector SPDR ETF (XLK)

This fund, with total net assets worth $91.09 billion, offers exposure to 69 companies across technology hardware, storage and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments and components industries. Its top five holdings include tech giants — NVDA (14.60%), Apple (13.09%), MSFT (12.11%), Broadcom (5.28%) and PLTR (3.50%). 

XLK has soared 21.4% year to date. The fund charges 8 bps as fees. It currently sports a Zacks ETF Rank of 1. 

Amplify Bloomberg AI Value Chain ETF AIVC

This fund, with net assets worth $32.41 million, offers exposure to 46 semiconductor, cloud/software and hardware companies that form the foundation of artificial intelligence (AI) technologies. Its top 10 holdings include AI-centric tech stocks – Advanced Macro Device (3.04%), AMU (2.69%) and GOOG (2.67%).

AIVC has surged 33.7% year to date. The fund charges 59 bps as fees and holds a Zacks ETF Rank #2 (Buy). 

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This article originally published on Zacks Investment Research (zacks.com).

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