Broad Industries is OK. This Infrastructure Fund Made AI Build to 28%

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Broad Industries is OK. This Infrastructure Fund Made AI Build to 28%

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PAVE beat XLI 131% to 93% over five years by focusing on electronics and construction companies that enable AI-powered bodybuilding.
Data centers could consume 12% of US electricity demand by 2028, while a 40-year-old power grid is forcing infrastructure capex to accelerate.
PAVE’s smaller focus decreased 4% for the week compared to XLI’s 2% decline, so partial resupply is outpacing full replacement for many owners.
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I Industrial Select Sector SPDR Fund (NYSEARCA:XLI) is the default option for most US industrial property investors. It owns industrial names in the S&P 500, providing broad exposure to aerospace, machinery, railroads, and defense at low costs. XLI has done its job over the past year, returning 24.05% through July 7, 2026. The problem is that much of the industry rally is driven by one small theme, and XLI dilutes it. A more focused infrastructure fund has caught much of the same wave.

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Why the XLI Still Works for Many Owners

XLI is cap-weighted across all S&P 500 industries, meaning its top 10 accounts hold 41.00% of assets, led by Caterpillar at 7.74%, GE Aerospace at 6.85%, and GE Vernova at 5.37%. The fund has 84 positions across transportation, defense, and manufacturing, with $31.07 billion in assets. That range is why people buy it. If the reader is looking for a representative of a different industry sector, the XLI does that cleanly.

Premium comes with a price. XLI trades at a 30 P/E ratio, which shows how much growth anticipation is already priced into the sector. Aerospace and defense words carry significant weight, but they respond to different cycles than how a data center is built.

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Gap: AI Capex Runs on Infrastructure

The biggest story in the industry right now sits on the utilities and construction side. The Department of Energy projects data centers will reach 12% of US electricity demand by 2028. Goldman Sachs notes that US electric grid assets are in their mid-40s, creating a structural conflict with the need for AI computing. That capex flows to electronics manufacturers, utility contractors, engineering firms, and suppliers. XLI owns some of these companies, but they compete for weight with Boeing, Uber, and defense startups.

PAVE: Same Theme, Fixed

I Global X US Infrastructure Development ETF (NYSEARCA:PAVE) is designed to hold companies tied to building physical infrastructure. Last year, PAVE returned 28.23%, ahead of XLI’s 24.05%. In five years, the gap widens: 131.44% for PAVE against 93% for XLI. The edge is real, and it comes from what the bag has.

Top PAVE positions include Quanta Services at 3.372%, an electrical contractor that builds transmission lines, and Eaton at 3.159%, which supplies power distribution equipment for data centers. Trane Technologies makes 3.329% in HVAC systems, and railroads, including Union Pacific, CSX, and Norfolk Southern, each weigh about 3.2%. The fund manages $12.4 billion in total assets as of February 28, 2026.

The mechanism is straightforward: when a hyperscaler commits capex to a new data center, the money flows to substation equipment, cooling systems, integrated providers, and telecom contractors. PAVE is fat in those categories. XLI includes similar names, but competes for shelf space with unrelated industries.

Tradeoffs and How to Approach Change

This is a small bet with PAVE. If AI capex slows or enabling services stagnate, it will feel it more than XLI. Neuberger Berman flagged this risk specifically, warning investors to look for problematic free cash flow in companies posting large capex. It also moves smaller in market cap, which means higher volatility. And last week, it fell by 4.21% compared to XLI’s decline of 1.54%, which shows the reduction of the fund in both directions. The XLI still carries the aerospace and defense exposure that the PAVE lacks.

An owner looking for a wide range of industries, including the defense cycle, can lose that in exchange for a complete exit. The cleanest method for most owners is partial reallocation instead of full replacement. Moving part of XLI’s property to PAVE tilts the industry’s sleeve to infrastructure without leaving extensive exposure. In a taxable account, capital gains on the overall sale of XLI can be meaningful when looking at sector performance, so cutting a portion or directing new contributions to PAVE can help avoid that conflict. In a retirement account, the tools are simple.

Where This Leaves Decision

The XLI does what it’s designed to do, but the real question is whether that design matches what the reader is trying to capture. If the goal is a wide range of industries, the XLI remains a clean tool. If the goal is exposure to the virtual layer of the AI build-out, PAVE has delivered strong returns over a one- or five-year period, and its holdings make that difference clear. The flexibility should be weighed against the student’s tax situation, time horizon, and comfort with the focal point.

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