AI-Themed ETFs Now Rank Among Top Five Fund Categories, JPMorgan Report Finds

JPMorgan Asset Management says artificial intelligence has become one of the biggest bets in the ETF business. The firm's July "Guide to ETFs" ranks AI-themed funds among the top five thematic categories by assets under management, despite a rough second quarter for the group.

Jon Maier, JPMorgan's chief ETF strategist and the report's lead author, told CNBC's "ETF Edge" that the AI trade has swallowed up other thematic categories that used to stand on their own. "Many [themes] are morphing towards AI and the ecosystem surrounding AI," Maier said.

He pointed to a growing overlap between AI-themed funds and infrastructure-themed funds, arguing they're increasingly the same trade. "It's all kind of feeding into the AI story, the applications, the energy [and] the AI models," Maier said. In plain terms: power plants, data centers, chipmakers and software companies are all getting bundled into the same investor narrative.

That popularity came with pain. JPMorgan's report notes AI-themed ETFs took a volatility hit in the second quarter, a period that included a sharp market selloff tied to tariff announcements and swings in mega-cap tech stocks. The report doesn't erase that rough patch. It just shows investors kept piling in anyway, or came back quickly once the theme stabilized.

Money Is Leaving Mutual Funds, Full Stop

The bigger structural finding in JPMorgan's report has nothing to do with AI specifically. Mutual fund inflows are drying up across the board, while ETF inflows keep climbing. Maier said the report's data shows negative inflows into mutual funds overall over the past several years, and he doesn't expect that to reverse. "That's only going to continue," he said.

Maier's explanation is straightforward: taxes. ETFs are structured so that they typically don't distribute capital gains to shareholders the way mutual funds do. Mutual fund investors can get hit with a tax bill even in a year the fund lost money, because the fund manager sold winning positions inside the portfolio.

Maier illustrated it bluntly. "Imagine if you bought a mutual fund in 2022 and you're down 20%, 30%, 40%, depending on what part of the market you bought, and you still got a capital gain of 6%. You're not happy," he said. That scenario, real for a lot of investors after the 2022 bond and stock selloff, is a major reason financial advisors and retail investors have been shifting assets into ETF wrappers instead.

A thematic label like "AI ETF" doesn't mean a fund only holds Nvidia and OpenAI's private-market cousins. These funds often hold a mix of chipmakers, cloud infrastructure companies, utilities powering data centers, and software firms marketing AI features. That's the "ecosystem" Maier is describing. It means two AI-themed ETFs from different providers can hold very different stocks and carry very different risk profiles, despite sharing a marketing label.

The volatility point matters too. Thematic ETFs, AI-focused or otherwise, tend to be concentrated bets on a handful of sectors rather than diversified holdings. When the theme is hot, returns can outpace the broader market. When sentiment turns, as it did during the second quarter's tariff-driven turbulence, thematic funds can fall harder and faster than a plain S&P 500 index fund. JPMorgan's report doesn't argue investors should avoid that risk. It just documents that they're taking it anyway, in growing numbers.

None of this is regulatory news. No SEC action, no fraud allegation, no lawsuit is attached to this report. It's an asset manager's internal analysis of where money is flowing, presented by the strategist who oversees ETF sales and product for JPMorgan. JPMorgan runs its own suite of ETFs and benefits when investors move money out of mutual funds and into the ETF structure Maier is describing. That doesn't make his tax point wrong. Capital gains distributions on mutual funds are a documented, well-known drag. But it's worth remembering the strategist making the case also sells the product being recommended.

The question is durability. Thematic investing fads have burned retail investors before, from dot-com funds in 2000 to clean-energy ETFs that cratered after 2021. Whether AI-themed ETFs are a multi-decade structural shift, comparable to what cloud computing did to enterprise software, or a bubble inflated by mega-cap tech concentration, is not something JPMorgan's flow data can answer. That verdict will come from earnings, not asset-under-management charts.