Yahoo Finance Is Market Broadening an Illusion? AI-Driven ETFs Doing the Trick
The market's bullish sentiment in 2024 revolves largely around the "Magnificent Seven," including NVIDIA, Tesla, and major platform giants. Analysts from Citi who have raised their S&P 500 year-end target to 5,600, have observed that more than two-thirds of the market's gains so far this year can be attributed to these big-tech companies.
Entering 2024, bullish strategists pointed at the contribution of a corporate earnings rebound to the market rally, which has materialized with 6% growth in the first quarter — the highest in nearly two years.
Tech earnings have driven most of this growth. Technology Select Sector SPDR Fund XLK has added 22% this year (as of Jun 21, 2024). However, strategists believe that the earnings growth has lately been broadening to sectors like Utilities and Energy. But is this really the case?
Is There Really Any Broadening Out?
Probably not. Sectors and ETFs that fall into the AI eco-system have been gaining lately and most investors have been mistaking it as the broadening of the stock market breadth (read: Bet on AI Ecosphere With These ETFs).
iShares U.S. Utilities ETF IDU and Virtus Reaves Utilities ETF UTES are up 11.5% and 18% this year (as of Jun 21, 2024) despite higher rates. Notably, the rise of AI has increased the need for data center capacity to manage AI tasks.
Data centers are big energy consumers, and AI applications consume even more energy than traditional computing. As a result, massive electricity demand driven by data centers has boosted these utilities ETFs (read: How Utilities Stocks and ETFs Became the Hot AI Play).
Consumer Discretionary Select Sector SPDR Fund XLY has jumped 12% this year. Despite being a consumer discretionary fund, the ETF invests 35% of its assets in Amazon and Tesla -- two important AI plays.
Investors can see another consumer discretionary ETF SPDR S&P Retail ETF XRT is up by just 4.9% in the year-to-date frame. The ETF XRT is a pureplay retail fund, absent of any major weight from the Magnificent Seven.
Meanwhile, we all know that NVIDIA NVDA (up about 170%) is the biggest beneficiary of the AI boom and so is the NVIDIA-heavy ETF VanEck Semiconductor ETF SMH, which has surged about 60% this year (read: ETFs to Tap as NVIDIA Becomes the Most Valuable Company).
Rapidly increasing electricity demand from data centers is proving to be a tailwind for the nuclear industry too, attracting the necessary investment to boost the development of small modular reactors. No wonder, the Range Nuclear Renaissance Index ETF NUKZ is up about 30% this year.
This, in turn, has spurred the demand for uranium mining. Uranium, mainly used in nuclear power plants, is one of the most carbon-free ways to generate electricity. As a result, the Global X Uranium ETF URA, a uranium mining fund, has advanced about 11% this year.
Being a crucial component of the energy transition, the global push for renewable energy has resulted in growing demand for copper, fueling a rally in its prices. Copper is also a key metal for cables used in data centers. Understandably, the Global X Copper Miners ETF COPX has advanced 23% so far this year (as of June 21, 2024) (read: Metal & Mining ETFs at a 52-Week High: Here's Why).
Bottom Line
The AI frenzy emphasized the significance of the expansive opportunities within the AI ecosystem. As a result, investors are leaving no stone unturned to tap the AI ecosystem in every form.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
SPDR S&P Retail ETF (XRT): ETF Research Reports
VanEck Semiconductor ETF (SMH): ETF Research Reports
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
iShares U.S. Utilities ETF (IDU): ETF Research Reports
Global X Copper Miners ETF (COPX): ETF Research Reports
Virtus Reaves Utilities ETF (UTES): ETF Research Reports
Global X Uranium ETF (URA): ETF Research Reports
Range Nuclear Renaissance Index ETF (NUKZ): ETF Research Reports
