r/investing
RACK Vaneck New ETF Is the new future Growth like DRAM or was it just another overhype?
Seeking analysis on whether AI infrastructure suppliers (semis, memory) or operators (data centers) offer better long-term growth potential.
- Suppliers of critical components like semiconductors and memory may capture higher margins due to high barriers to entry and essential demand.
- Infrastructure providers face inelastic demand as AI model complexity and data center expansion require continuous hardware upgrades.
- Bottlenecks in power, cooling, and networking equipment create pricing power for specialized industrial and tech firms.
- Hardware suppliers face cyclical risks and potential overcapacity if AI adoption slows or fails to meet ROI expectations.
- Data center operators may suffer from commoditization and intense competition, squeezing profit margins despite volume growth.
- High capital expenditure requirements for both sectors pose financial risks if interest rates remain elevated or funding tightens.
I’ve been thinking a lot about the future of technology and AI, and I’m trying to figure out where the biggest long-term investment opportunities might be. As AI, cloud computing, data centers, and advanced technologies continue to grow, I’m wondering whether the real winners will be the companies that own and operate the infrastructure, such as data centers and technology facilities, or the companies that supply the critical resources and components that make all of this possible.
For example, every new AI model and cloud service requires enormous amounts of computing power, memory, storage, networking equipment, electricity, and cooling. Because of this, demand for things like tech resources, advanced semiconductor and other key hardware components seems likely to increase significantly over time. That makes me wonder whether investing in the suppliers of these resources could potentially be more rewarding than investing directly in data center operators or infrastructure companies.
I’m interested in understanding how investors and industry experts think about this. Over the next 10 to 20 years, where is the most value likely to be created? Will data centers themselves benefit the most from the AI boom, or will the companies supplying memory chips, semiconductors, power equipment, cooling systems, and other essential technologies capture a larger share of the profits like what DRAM, SMH are doing?
I’m also curious about potential bottlenecks. As demand for AI continues to grow, what parts of the ecosystem could become the most valuable because they are difficult to replace or expand? Could it be memory manufacturers, semiconductor companies, power and energy infrastructure providers, industrial automation firms, networking equipment makers, or data center owners themselves?
If I were looking for long-term growth rather than income, how would I compare investing in technology infrastructure versus investing in the resources and components that support it? Which area could have has the strongest potential to create wealth over the coming decades RACK vs DRAM
These hyper-focused thematic ETFs like RACK is historically a highly reliable indicator of near-term market euphoria, AKA bubble. So honestly, not a great sign.
Good for swimg trading not great long long
RACK Came too late and also doesn't seem to have exposure the types of things that will go explosive. It has dipped a bit and will likely slowly start to climb. Will probably stay a thing over the next year.
DRAM is the most likely for outsized performance but its also the one that will knock back the hardest. SMH I think is starting to test its limits before people will expect real numbers to back the valuations.
Also remember that chip technology increases potency over its life, but AI only needs to be "so good" to mostly correctly answer the average persons requests so the footprint to AI delivery ratio is going to get smaller and the expectation of AI prices to reduce as competition increases and older models satisfy needs will crunch on profit margins.
The AI boom is a temporary boom and I estimate will go the way of the internet service providers - eventually price competition will come when there enough models that do "good enough" to get buy. We aren't near that yet, Claude seems to have a firm grip on things.
I feel like we are pretty much already priced for 1 to 2 years out. Over the next 10 to 20 you will see the efficiency squeeze, so I don't expect DRAM / SMH / MU to keep bringing the heat over and over again, it will cool off. It may not ever pop, as I think they are capable of expanding to meet the demand, but profit margins will decrease. You'll see more transitions like NVDA to stock buybacks and higher "dividend" payouts as they convert to stable cash giants instead of massive growth engines.
The next move I think is coming up with cleaner energy solutions to feed these data centers as they are already causing power resource problems. I don't think this will be a massive trend as there aren't massive returns in this market, but innovator and leaders in these sectors will get a nice boost of returns if the solutions are built right.
I think of Data centers like real estate, but a real estate that exponentially extends vertically, so your 1 story becomes a 10 story becomes a 100 story. Pretty soon, you need less horizontal real estate, so there will be big data center buy in, but in 10 to 20 years the data center business will be a cut throat price competition of thin margins as processing power improves.
Bottle neck will eventually become rare metals and resources. Maybe not in our lifetime, but wars and planetary exploration will ultimately come down to that - finite rare earth minerals and metals.
There will always be demand for Chips and processing power, so its not something that will likely ever massively pull back, but price may recede if true price competition becomes an issue. At that point it will be which companies continue to innovate that keep the ball moving forward, vs the ones that become Nike and start falling year over year until they reach a fair valuation.
For long term Minerals -> AI platforms -> Hardware -> Energy is my priority idea of where the big gains still lie. Data centers will be very profitable for the next 5 years, but past that - the replacement cost and real estate to efficiency ratios may start to take a toll. We shall see.
That's my2 cents
SMH will do well for many, many years. It will still be doing well in the 22nd century. Technology will never go away, it will just continually improve and evolve.
You are absolutely right, I am more focused on OPs question about the long term. Semiconductors tend to repeat the same cycle though Boom, Oversupply, Price Crash, Recovery Versus the steady platform style companies that have held steady growth trajectories. You are not wrong, they will be around forever. From OPs question of long term where is most of the value created? I still personally think we hit the boom part already and a lot of expansion is already priced in that these companies now need to deliver results to maintain. At \~40x P/E (I think last I looked at MU)- these companies have a lot of room to grow to catch up to their pricing. If their pricing too far outpaces the rate at which they can increase capacity or our ability to supply the rare metals to make them creates a choke point - they will halt growth and possibly backpedal.
40 P/E isn't much in a bull economy, but it is asking a lot in a non-bull economy. It's been a while since we've had a true recessive pull back impacting tech, covid did not do that to the tech sector because work from home fueled a whole new demand for computing power and budding AI created new demand for new chip architecture.
There will be growth in all of these across the board. Not a position to exit, but there are many other sub components to the equation that have yet to realize their associated growth as well.
"Will these companies do well?" is only a part of the question though.
Just curious. As an holder of shares i was bewildered last week that SMH was fairing much worse than some of the main companies it's comprised of. Do you have any opinion? I'm a new holder pf SMH, and the whole idea of asynchronous movevement is interesting to me.