The Russell Rebalance Signal: Why Energy Infrastructure Stocks Are the Hidden Engine of AI Growth

The recent exclusion of Merck & Co. (MRK) from the Russell 1000® Value Index on June 27, 2025, marks a pivotal shift in market dynamics. While Merck's removal reflects its evolving growth profile, the broader reconstitution of the index—adding tech giants like Amazon (AMZN), Alphabet (GOOGL), and Meta (META)—signals a seismic shift toward growth-oriented sectors. This move underscores a critical opportunity for investors: capitalizing on overlooked energy infrastructure stocks that are quietly fueling the AI boom.

The Russell Rebalance Revelation

The Russell 1000® Value Index's 2025 rebalance, effective June 27, saw a dramatic influx of growth-driven companies. These additions, including Amazon, Alphabet, and Meta, now command a combined 5.5% weight in the index, a stark contrast to their previous exclusion. This shift highlights the growing influence of AI-driven industries and the redefinition of “value” in equity markets.

The inclusion of these tech titans marks a cyclical pattern: growth stocks often cycle in and out of value indices as market conditions evolve. For instance, Meta and Netflix were added in 2022 during a growth slump, only to be removed in 2023 as AI optimism surged. Today's reconstitution reflects renewed investor confidence in tech's long-term trajectory—but it also points to a critical blind spot: the energy infrastructure underpinning these companies' operations.

The AI Energy Infrastructure Nexus

AI's computational demands are staggering. Training a single large language model can consume as much energy as a small town. Data centers, cloud infrastructure, and advanced semiconductor manufacturing all require immense power—and the infrastructure to deliver it. Yet, the stocks powering this energy transition remain overlooked.

Consider the following:
- Data Centers: Hyperscale facilities require 24/7 power, often paired with renewable energy sources.
- Grid Modernization: Aging grids struggle to handle surges in demand. Smart grid technologies and distributed energy systems are essential for reliability.
- Renewable Energy Storage: AI's growth hinges on scalable energy storage solutions, such as advanced batteries or hydrogen systems.

Overlooked Infrastructure Plays

The Russell's focus on tech growth ignores the unsung heroes enabling it. Here are three sectors ripe for investment:

1. Utilities and Grid Operators
   Companies like Dominion Energy (D) and NextEra Energy (NEE) are modernizing grids and integrating renewables. Their stable cash flows and regulated rate structures offer defensive appeal amid tech volatility.

2. Smart Grid and Energy Tech
   Firms such as Itron (ITRI), which develops smart metering and grid analytics, and Schneider Electric (SU), a leader in industrial automation, are critical to optimizing energy efficiency.

3. Critical Minerals Producers
   Lithium, cobalt, and rare earth metals are the building blocks of batteries and semiconductors. Lithium Americas (LI) and Albemarle (ALB) are positioned to benefit as AI's energy demands escalate.

Investment Opportunities: Think Beyond the Index

The Russell's rebalance has created a dichotomy: growth stocks dominate headlines, but their success depends on infrastructure that's still undervalued. Here's how to capitalize:

• Diversify with Infrastructure ETFs: The Invesco S&P 500 Equal Weight Utilities ETF (PUI) offers exposure to utilities without overconcentration in any single stock.
• Focus on Operational Leverage: Prioritize companies with pricing power, such as grid operators with regulated rates, which insulate them from market swings.
• Monitor AI-Driven Catalysts: Track sectors like data center REITs (DLR) or energy storage innovators (SQM) that could see demand spikes as AI adoption accelerates.

Conclusion: The New Value Equation

Merck's exclusion from the Russell 1000® Value Index is less about its merits and more about evolving market priorities. The index's pivot to growth stocks like Amazon and Alphabet underscores the AI economy's ascendance—but investors must look beyond the spotlight. The unsung heroes of energy infrastructure are the quiet engines powering this revolution. By targeting overlooked sectors like smart grids, critical minerals, and utility modernization, investors can position themselves to profit from a trend that's only just beginning.

As the Russell's rebalance reminds us: value isn't just in the stock—it's in the systems that make it possible.