The artificial intelligence (AI) trade may be entering a new phase, and this time, investors are looking beyond semiconductor winners toward companies that can actually monetize AI at scale.
After nearly two years of AI-driven market leadership by Nvidia Corp (NASDAQ:NVDA), shares of Alphabet Inc (NASDAQ:GOOGL) have surged into the spotlight. The Google parent is closing in on crossing Nvidia as the world’s most valuable company. Alphabet has rallied roughly 23% so far this year, outpacing Nvidia’s 14% gain over the same period.
The shift is now spilling into ETFs tied to cloud computing, software, internet platforms and diversified AI exposure — signaling what some analysts are calling the “second wave” of the AI ETF trade.
From AI Builders To AI Monetizers
The first phase of the AI rally overwhelmingly favored chipmakers and infrastructure providers. Semiconductor-focused funds like VanEck Semiconductor ETF (NASDAQ:SMH) and iShares Semiconductor ETF (NASDAQ:SOXX) became some of the market’s hottest trades as Nvidia emerged as the face of the generative AI boom.
Now, investors appear increasingly focused on firms capable of turning AI spending into sustained revenue growth across advertising, cloud services, enterprise software and autonomous driving.
Alphabet’s latest quarterly results accelerated that narrative. The company reported first-quarter revenue of $110 billion, up 22% year over year, while Google Cloud revenue surged 63% to $20 billion. Operating margins remained above 36% even as Alphabet doubled capital expenditures to $35.7 billion to expand AI infrastructure.
The company’s expanding AI ecosystem — spanning Gemini models, custom TPUs, YouTube, Search, Waymo and cloud security firm Wiz — has strengthened the case for broader AI-platform ETFs over pure semiconductor bets.
ETFs Riding Alphabet’s AI Momentum
That dynamic is benefiting diversified technology and cloud funds with sizable Alphabet exposure.
Among the unconventional winners are
- iShares US Technology ETF (NYSE:IYW) has surged nearly 19% over the past month and 17% YTD, with Alphabet (share classes A and C) representing roughly 13% of holdings.
- Motley Fool 100 Index ETF (BATS:TMFC) has climbed close to 9% over the past month. The fund allocates more than 9% to Alphabet Share Class C (NASDAQ:GOOG).
- Invesco Nasdaq Internet ETF (NASDAQ:PNQI), another heavy Alphabet play (with 10% weightage), has benefited from renewed enthusiasm around internet and AI-platform companies.
- Cloud-focused ETFs including First Trust Cloud Computing ETF (NASDAQ:SKYY) and Global X Cloud Computing ETF (NASDAQ:CLOU) are also seeing renewed investor attention over the past month as enterprise AI adoption accelerates. Both the funds are up 15% and 20%, respectively in the past 30 days.
Why Alphabet’s AI Position Looks Different
The broader shift suggests Wall Street may be rotating from “AI builders” toward “AI monetizers.”
Unlike Nvidia, whose fortunes remain closely tied to AI hardware demand, Alphabet controls multiple layers of the AI stack — chips, models, cloud distribution and consumer applications — allowing it to directly integrate AI into profitable businesses.
Its diversified revenue streams also differentiate it from many AI peers. Beyond Gemini and cloud computing, Alphabet continues to benefit from resilient Search advertising, YouTube growth and the expansion of autonomous-driving unit Waymo.
Valuation Risks Still Loom
Despite the momentum, valuation concerns remain for both the stocks. Alphabet now trades around 28 times forward earnings, according to Benzinga Pro, while Nvidia’s forward multiple is roughly 27x.
That raises the risk that any slowdown in AI spending, regulatory scrutiny or softer cloud demand could pressure the stock after its massive rally.
For ETF investors, however, diversified AI exposure may offer a middle ground: participation in Alphabet’s AI momentum without taking on the full risk of a single-stock trade in an increasingly crowded market.
Image: Shutterstock
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