Artificial intelligence has moved far beyond being a niche technology focused solely on semiconductors and software. It is now transforming energy markets, infrastructure investment, and the way portfolios are built. According to investment professionals speaking on CNBC’s ETF Edge, investors who limit their attention to traditional AI sectors may miss where the next wave of value creation is taking place.

Much of the market momentum and rapid expansion of certain companies can be traced to the physical demands created by AI. Massive computing power requires reliable electricity, advanced cooling systems, stable grids, and highly efficient data centers. These factors are no longer secondary considerations but critical constraints. A striking example is Bloom Energy. After its 2018 IPO, the company struggled for years to outperform its initial listing price. That changed when demand for on-site fuel cells from data centers surged. Since last year, Bloom Energy’s share price has risen more than 500 percent, pushing its market capitalization beyond $30 billion.

This shift has opened up new opportunities in the small- and mid-cap space. Companies that once attracted little attention are now rapidly climbing in market value. Jennifer Grancio, global head of distribution at TCW Group, noted on ETF Edge that many of these firms operate in specialized niches with limited competition. In such environments, business fundamentals can improve much faster than overall investor awareness.

At the center of this transformation is the issue of energy reliability. Over the past decade, as renewable energy costs declined and became competitive with fossil fuels, the market focused heavily on questions around consistency, such as how dependable wind or solar power could be. However, the rise of AI has reframed that debate. Data centers cannot function with intermittent power, as even brief outages can lead to costly disruptions. Continuous and predictable energy supply has become non-negotiable.

This need has driven renewed interest in nuclear energy. Grancio pointed to a significant shift toward nuclear solutions, including fresh investment in maintaining existing plants and developing small modular reactors. These initiatives are creating demand for new suppliers and accelerating growth for specialized companies positioned upstream of utilities and major cloud service providers.

Inside the data center, efficiency is just as critical. As AI workloads scale rapidly, cooling systems and power management have emerged as major bottlenecks. Investors are increasingly drawn to companies that rank at the very top of their respective niches, especially in areas where there are few viable alternatives. When a firm is one of only a handful of providers with proven technology, its strategic value increases significantly.

Market structure plays an important role in shaping returns. In several of these segments, the number of suppliers is extremely limited, sometimes approaching oligopoly conditions. While this concentration can enhance operating leverage and profitability, it also raises the stakes, as mistakes can have outsized consequences.

These dynamics are helping to boost interest in actively managed ETFs. While passive index funds can capture broad market trends and eventually include fast-growing companies as they mature, active strategies aim to identify promising players earlier and hold them through multiple stages of development.

That said, the risks should not be underestimated. VanEck CEO Jan van Eck cautioned that some areas within the AI-driven ecosystem include smaller companies with weaker balance sheets that are highly sensitive to electricity demand. This exposure can lead to substantial volatility along the way.

For that reason, van Eck emphasized that no single AI-related theme should dominate a portfolio. Overconcentration can amplify downside risk, even in sectors with strong long-term potential. He also noted that VanEck’s nuclear-focused ETF reached extremely elevated valuation levels last year before retreating to a more reasonable range for new investors.

Looking ahead, ETF experts believe that as investors approach AI more selectively in their portfolio strategies in 2026, disciplined rebalancing and realistic risk expectations will be essential. By managing exposure carefully, investors can remain engaged with long-term opportunities without chasing market highs or reacting emotionally during inevitable pullbacks.