What Actually Determines AI’s Winners?

Patrick Kelly, portfolio manager of the Alger AI Enablers & Adopters ETF, sees AI reshaping nearly every sector, not just the handful of names most investors watch. He spends his day separating genuine AI beneficiaries from companies that simply mention the term on earnings calls.

We sat down with Kelly to talk through what counts as proof, which industries he sees as most vulnerable, and the signal he is tracking next.

Q: Alger’s investment approach is built around finding companies that benefit from disruption and change. When you apply that lens to AI specifically, what’s the biggest misconception you encounter among investors?

A: In my view, many investors are underestimating the demand for intelligence and computing power. We believe AI is still in its early stages and that the total addressable market (TAM) is massive, potentially exceeding anything we’ve seen previously. We are only beginning to understand the potential for agentic AI, and we have barely scratched the surface of physical AI, including humanoids and robots. Combined, these AI advances could create significant demand for compute and extend the duration of the AI cycle. 

Q: How would you characterize where we are in this AI cycle, and how does it compare to previous technology shifts you’ve invested through?

A: I believe we’re still in the early innings of a transformational, multi-decade investment theme. Over my career, I’ve invested through several major technology waves, from the internet buildout to mobile computing and cloud adoption. What feels different today is the size of the opportunity and the speed of adoption. We’re seeing AI move from experimentation to real-world deployment across industries at record speeds. Companies are increasing investment, enterprises are beginning to adopt more advanced AI tools, and nations are investing in AI capabilities as a matter of economic competitiveness and security.

When I look at adoption, demand for compute, and the amount of capital being invested, I see a theme that’s still gaining momentum. AI demand is growing more than 10x year-over-year, and we believe AI’s ability to enhance labor productivity could boost global GDP by more than $11 trillion by 2030. The headlines may make the theme feel mature, but I think the economic impact is just getting started. 

Q: As a portfolio manager, how do you go about separating the AI winners from the losers?

A: It starts with fundamental, bottom-up research. We look for evidence that AI is helping a company grow faster, improve margins, strengthen its competitive position, or open up new markets. That’s very different from simply talking about AI on an earnings call. We spend a great deal of time evaluating whether those benefits are measurable and sustainable, and we continually reassess our investment theses and look for evidence that confirms or challenges our views.

We also recognize that innovation creates both winners and losers. Several industries ranging from advertising and enterprise software to IT consulting and travel are potentially vulnerable to disruption. Some companies will adapt quickly, while others may struggle to keep pace. That’s why we think a research-driven, actively managed approach is so important, particularly in a rapidly evolving area like AI.

Q: Beyond generative AI, where do you see the next wave of opportunity, and what could hold it back?

A: AI is quickly becoming more autonomous and embedded in everyday workflows. We’re already seeing the early stages of AI agents that can perform increasingly complex tasks with less human involvement. Over time, these agents will be able to work 24 hours a day, seven days a week doing all sorts of tasks from coding to drug discovery. We could be living in a world where there are more agents than humans, creating tremendous demand for compute. 

The greater near-term risk may be the industry’s ability to build the physical infrastructure needed to meet demand. AI requires enormous amounts of computing capacity and electricity, yet limited power availability and lengthy permitting processes can delay new data centers. Community concerns about electricity prices, water consumption, and grid reliability are also creating political resistance that could affect where and how quickly projects are built. These supply-side constraints may slow the pace of deployment, but in my view, they do not diminish the long-term opportunity. In fact, by limiting the pace of buildout, they could extend the duration of the investment cycle. I believe we’ll likely be in a supply constrained environment for longer than many investors expect.

Q: For advisors and investors thinking about portfolio construction, how should they think about sizing an AI-focused allocation like this one?

A: I think investors should start by recognizing that AI isn’t a niche technology theme or “bubble.” In my view, it’s one of the most important innovation cycles we’re likely to see in our lifetimes, with the potential to reshape nearly every sector of the economy, much like the internet did. 

As I’ve said, AI has the potential to create both significant winners and significant losers across the market. Many passive, index-based strategies may hold some AI beneficiaries, they may also include companies being disrupted by it; however, a dedicated allocation to an actively managed, AI-focused strategy can give investors more direct exposure to companies we believe are positioned to benefit most from AI while also avoiding those vulnerable to disruption.

Q: What’s the one signal you’ll be watching over the next year to know if this thesis is playing out as you expect?

A: The main signal I will be watching is the continued improvements in AI capabilities. I believe many investors are underestimating how much better AI could become. As the technology improves, the utility of AI will become more apparent, which could lead to stronger adoption and a greater ROI. 

For more information, standard performance and important disclosures about the Alger AI Enablers & Adopters ETF (ALAI) visit Alger.com/ALAI.

Disclosure

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of September 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors, and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology.

Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds and ETFs.

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Before investing, carefully consider the Fund’s investment objective, risks, charges, and expenses. For a prospectus and summary prospectus containing this and other information or for the Fund’s most recent month-end performance data, visit www.alger.com, call (800) 223-3810, or consult your financial advisor. Read the prospectus and summary prospectus carefully before investing. Distributor: Fred Alger & Company, LLC. Listed on NYSE Arca, Inc. NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.