ETFs and the 2026 Split: How Smart Bets on Infrastructure Are Being Missed

The market is clearly on an AI adoption curve, but the ETF flows are splitting the winners from the rest of the economy in a winner-take-most dynamic. This divergence is creating a critical blind spot for investors focused on the next paradigm shift. The concentrated bets in ETFs are capturing the visible, direct winners, but they are missing the exponential growth in the foundational infrastructure layer that powers it all.

The performance gap is stark. The Technology sector (XLK) has jumped 23.9% this year, fueled by insatiable demand for computing power. This is the epicenter of the AI S-curve. Yet, this massive rally is not evenly spread. The Global X AI & Technology ETF, with its broad exposure to international AI firms, gained over 37% in the past year, significantly outperforming the S&P 500. This isn't just a sector rally; it's a concentrated bet on the visible front-runners of the AI revolution.

The ETF industry itself is a story of rapid innovation and concentration. Last year, over 1,100 new ETFs were launched, showing how quickly the product space is evolving to capture new themes. Yet, the vast majority of this innovation and inflows are pouring into a narrow set of strategies. The result is a market that is actively pricing in the exponential growth of AI software and hardware, while the underlying rails-energy, materials, and specialized compute infrastructure-remain under-bet.

This creates a setup where the ETF market is leading the charge, but its concentrated exposure means it's missing the broader, more foundational growth. The utilities sector, for instance, has surged 20.9% this year, a direct consequence of AI's hunger for electricity. That's exponential demand in a foundational layer, but it's not captured in the same concentrated AI ETFs. The ETF divergence is real: it's highlighting the direct AI winners while the rest of the economy, and the critical infrastructure beneath it, gets left behind in the flow.

Amazon as a Case Study: The Infrastructure Bet

Amazon presents a classic case of a foundational infrastructure play that the market may be mispricing. The company is building the AI infrastructure layer from the ground up, following the same playbook that made it dominant in logistics and cloud. Yet, its stock performance tells a story of lagging expectations, creating a potential disconnect between current valuation and future exponential adoption.

The numbers highlight this divergence. While the broader market has rallied, Amazon's stock is up just 6% year to date, trailing the S&P 500's 18% gain. This underperformance persists even as the core business accelerates. Amazon Web Services revenue grew 20% in the third quarter, a clear sign of reacceleration. The company is investing heavily to meet this demand, planning to up its capital expenditure budget in 2026 for AI data centers. This is the infrastructure layer in action-building the foundational rails for the next computing paradigm.

Amazon's strategic bets are massive and forward-looking. It has a $38 billion, seven-year deal to provide compute power to OpenAI, locking in demand for its cloud services. Simultaneously, it is ramping its custom Trainium AI chips, aiming to capture more value from its own infrastructure. This dual approach-providing the compute and building the specialized hardware-mirrors its historical pattern of investing to win. The company is not just a customer of AI; it is engineering the supply chain for it.

The mispricing here is a classic sign of a market focused on near-term sentiment. Analysts see the catalysts: reaccelerating AWS growth, new chip demand, and advertising expansion. The consensus is bullish, with a 96% Strong Buy or Buy rating from sell-side analysts and average price targets implying significant upside. Yet, the stock's muted move suggests the market is discounting the full scale of this infrastructure build-out. For investors, this creates a setup where the foundational rails are being laid, but the market is still pricing the company as if it were just an e-commerce or cloud business. The exponential adoption curve for AI infrastructure is just beginning, and Amazon is positioned at its base.

Strategic Implications for 2026: Navigating the ETF Landscape

The divergence we've seen is not a temporary blip but a signal of a paradigm shift in how value is being created. For investors, the path forward in 2026 requires a deliberate pivot from chasing the visible front-runners to positioning for the foundational infrastructure that will power the next exponential adoption curve. The catalyst is clear: as AI software matures, the market's focus will inevitably shift to the providers of the essential rails-compute, energy, and specialized hardware. This re-rating event is the primary catalyst for stocks like Amazon, which are building those rails today.

ETFs will be the primary vehicle for this transition, but they are a double-edged sword. The industry's innovation is accelerating, with active share classes and complex strategies offering new tools to capture nuanced themes. Yet, this very innovation risks deepening the concentration problem. The record over 1,100 new ETFs launched last year means more choices, but the flows are still overwhelmingly directed toward the most obvious AI narratives. Investors must navigate this landscape with care, using these new tools not to chase the same crowded trades, but to gain targeted exposure to the infrastructure layer that ETFs are currently missing.

The primary risk is a mispricing of the adoption curve itself. By focusing on ETFs that are already fully priced for peak adoption in software and hardware, investors may miss the earlier, more profitable stages of exponential growth in the underlying infrastructure. The utilities sector's 20.9% surge this year is a direct, visible consequence of AI's hunger for electricity-a foundational layer that is not captured in the same concentrated AI ETFs. This is the gap. The setup is for a market that has priced in the software revolution but is still undervaluing the infrastructure build-out required to sustain it.

The roadmap for 2026, therefore, is one of strategic selection. It means looking beyond the headline-grabbing AI ETFs and identifying the companies engineering the supply chain for the next paradigm. For Amazon, the catalysts are coming into focus: reaccelerating growth at AWS, demand for new Trainium AI chips, and a ramp in advertising. These are not just operational updates; they are milestones on the infrastructure S-curve. The market's current mispricing of these foundational bets creates a window of opportunity. The ETF landscape will evolve, but the investors who succeed will be those who use it as a tool to access the exponential adoption in the infrastructure layer, not just the software winners already on the plateau.