Banks Outperforming Tech Amid AI-Driven Transformation and Operational Resilience

The global economy in 2025 is defined by a paradox: while artificial intelligence (AI) has become a universal catalyst for growth, investor sentiment remains sharply divided between the financial sector and the technology sector. Banks, long perceived as laggards in innovation, are now outpacing tech in operational resilience and productivity gains, driven by strategic AI adoption. Meanwhile, tech stocks-despite their AI-driven momentum-face growing skepticism over stretched valuations and macroeconomic risks. This divergence presents a compelling contrarian opportunity for investors to capitalize on the underappreciated potential of AI-adopting banks, particularly through financial sector ETFs like the XLF.

JPMorgan's AI-Driven Productivity Surge

JPMorgan Chase has emerged as a poster child for AI's transformative potential in banking. By 2025, the bank reported that AI had doubled productivity in its consumer and community banking division, lifting performance from 3% to 6% year-over-year, with operation specialists experiencing gains of up to 50%. These improvements stem from AI-driven automation in self-service banking, real-time customer support, and fraud detection. JPMorgan's $1.5 trillion Security and Resiliency Initiative further underscores its commitment to leveraging frontier technologies like AI and cybersecurity to bolster operational resilience and customer trust.

The bank's research also highlights AI's macroeconomic impact, estimating that generative AI could add $7–10 trillion to global GDP-up-to 10% of the global economy. This positions JPMorgan not just as a beneficiary of AI but as a strategic architect of its broader economic implications.

Investor Sentiment: Tech's Overvaluation vs. Banks' Undervalued Potential

While JPMorgan and its peers are reaping tangible benefits from AI, investor sentiment toward the technology sector has grown cautious. Retail investors, once bullish on AI-driven equities, are now hedging their bets. A Finimize survey reveals that 61% of investors believe AI valuations are overstretched, yet 67% plan to maintain or increase exposure, often pairing tech holdings with defensive assets like gold or bonds. This shift reflects a maturing market, where enthusiasm for AI is tempered by concerns over a potential bubble.

Meanwhile, banks are navigating a different landscape. Despite their AI advancements, financial institutions face skepticism due to legacy infrastructure challenges and fragmented data systems according to BCG analysis. However, this skepticism masks their operational progress. For instance, 75% of banks with over $100 billion in assets are expected to fully integrate AI strategies by 2025, a move that is already enhancing risk management and customer experience.

ETF Performance: XLF vs. Tech's Volatility

The performance of financial sector ETFs like the XLF (Financial Select Sector SPDR Fund) contrasts sharply with the volatility of tech-focused funds. In Q3 2025, XLF attracted $3.1 billion in inflows, reflecting growing confidence in the sector's resilience. This inflow is particularly notable given the broader financial sector's lag in AI-driven hype compared to tech.

In contrast, tech ETFs like the Technology Select Sector SPDR Fund (XLK) faced a $2.5 billion outflow in Q4 2025, despite the Magnificent 7's robust earnings growth according to ETF data. AI-focused ETFs such as the Roundhill Generative AI & Technology ETF surged 49.5% year-to-date, but their valuations remain precarious. For example, the VanEck Semiconductor ETF returned 42.5% in 2025, yet its price-to-earnings (P/E) ratio of 23.77 suggests overvaluation.

Contrarian Case for Bank ETFs

The disconnect between banks' operational AI progress and their undervalued ETFs creates a compelling contrarian opportunity. While tech investors grapple with valuation risks, banks like JPMorgan are delivering sustainable productivity gains. For instance, JPMorgan's AI-driven initiatives have already enhanced customer experience, through real-time support and personalized financial services, areas where tech firms often struggle with user adoption.

Moreover, banks are rethinking their tech investments to shift from "run-the-bank" to "change-the-bank" strategies, according to BCG analysis. This strategic pivot, combined with their role in financing AI infrastructure (e.g., data centers), positions them as critical enablers of the AI economy.

Conclusion: A Tactical Shift to Financials

The AI revolution is no longer confined to tech giants. Banks that integrate AI for operational resilience and customer-centric innovation are outperforming their tech counterparts in terms of sustainability and investor confidence. While tech ETFs face valuation headwinds, financial sector ETFs like XLF offer a more balanced exposure to AI's transformative potential. For contrarian investors, the time to act is now-before the market fully recognizes the underappreciated value of AI-adopting banks.