AI-themed ETFs surge despite volatile quarter

JPMorgan Asset Management’s latest research on exchange-traded funds reveals that AI-themed ETFs have become a cornerstone of investor portfolios, according to CNBC. The finding comes from JPMorgan’s “Guide to ETFs,” released this month, which identifies artificial intelligence exposure as one of the five largest thematic investment categories by assets under management, a remarkable achievement given the sector experienced meaningful turbulence during the second quarter of 2026.

The strength of AI-themed ETFs reflects a broader shift in how people invest. Rather than choosing individual stocks or holding traditional mutual funds, more investors are using these funds to gain exposure to the artificial intelligence story and the supporting industries that power it.

Why the AI boom is reshaping how investors buy funds

Jon Maier, JPMorgan’s chief ETF strategist, explained in an interview with CNBC’s “ETF Edge” that the appeal of AI-themed ETFs goes beyond simply betting on the technology itself. He observed that many investment themes are “morphing towards AI and the ecosystem surrounding AI,” meaning investors are increasingly viewing infrastructure, energy and computing power as inseparable from the core artificial intelligence narrative. The applications that run on AI models, the electricity required to power data centres, and the semiconductors and servers that host these models are all feeding into a single coherent investment thesis.

This bundling matters because it means AI-themed ETFs are not purely software plays. They capture the entire chain of industries that benefit when artificial intelligence becomes central to the economy. Someone buying these funds is essentially betting not just on tech companies building AI tools, but on the utility companies supplying energy, the equipment manufacturers building infrastructure, and the companies providing the raw materials. This interconnected view explains why the funds have attracted so much capital despite recent volatility.

The bigger picture: mutual funds are losing the race to ETFs

JPMorgan’s research reveals something equally striking beneath the headline about AI-themed ETFs: the entire mutual fund industry is experiencing a sustained drain of investor money. Over the past several years, mutual funds have recorded negative inflows overall, meaning more money is leaving these funds than entering them. Exchange-traded funds, by contrast, are attracting substantial new capital, and Maier suggests this trend will accelerate rather than reverse.

The reason is partly structural and partly tax-related. Exchange-traded funds, by design, have a mechanical advantage when it comes to tax efficiency. Unlike mutual funds, which distribute capital gains to shareholders whenever the fund manager sells a holding at a profit, exchange-traded funds typically do not trigger capital gains taxes for investors simply by existing. This distinction becomes painfully obvious in volatile markets. Imagine an investor who bought a mutual fund in 2022 and saw its value drop 20 to 40 percent over the following years. Even though they are sitting on substantial losses, they might still receive a capital gains distribution from the fund manager’s trading activity, forcing them to pay tax on a gain they do not actually feel. Exchange-traded funds sidestep this trap, making them far more attractive, especially for retail investors managing accounts in taxable brokerages rather than sheltered accounts like a 401(k) in the US or ISA in the UK.

Why do AI-themed ETFs keep attracting money even when they fall?

AI-themed ETFs are attracting capital because they offer exposure to a megatrend (artificial intelligence adoption across the economy) in a tax-efficient wrapper. Even when the sector experiences a rough quarter and individual holdings decline, the structural advantages of the ETF format mean investors continue adding money, betting on longer-term growth. The second-quarter volatility did not deter them because they view the dip as a buying opportunity rather than a reason to sell.

What this means for you

The growth of AI-themed ETFs and the shift from mutual funds to exchange-traded funds reflect real changes in how financial markets operate. Here is what you should understand:

• Tax efficiency matters more than you might think: If you hold investments outside a sheltered account (like a taxable brokerage account in the US, or a General Investment Account in India), the choice between an ETF and a mutual fund can materially affect your after-tax returns over time. An ETF’s structure simply avoids distributing capital gains when the fund manager trades, whereas a mutual fund may force you to pay tax on gains you did not trigger.
• Thematic investing is not new, but the wrapper is: Investors have always wanted exposure to big trends like artificial intelligence. What is changing is the vehicle. Today, ETFs dominate thematic investing because they combine easy trading, low costs and tax benefits. If you are considering a bet on AI, understand whether you are buying an AI-themed ETF or a mutual fund with similar holdings, because the after-cost, after-tax outcome can differ.
• “AI ecosystem” is broader than you might assume: When someone recommends an AI-themed ETF, it likely includes not just software companies but also energy firms, semiconductor makers, and infrastructure providers. Before investing, check what actually sits inside the fund. Your idea of an AI investment and the fund manager’s idea might differ.

For a deeper dive into how exchange-traded funds work, what they cost, and how to assess whether they suit your situation, explore Thewealthora’s guides to ETF investing and building a diversified portfolio.

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Originally reported by CNBC. Facts verified; analysis and wording are Thewealthora’s own.

Arpit Soni

The Thewealthora desk covers markets, money and personal finance, with zero jargon and every claim sourced.