Physical AI and Infrastructure

Excitement around AI software and large language models (LLMs) remains high in 2026. However, the real bottleneck and emerging focus has shifted toward physical infrastructure. This is especially true of memory capacity, which determines how large a model can run locally or in the cloud. Yet, even that is just the tip of the iceberg of what is to come.

Key Takeaways

• AI innovation is rapidly expanding past graphic processing units into physical infrastructure, hardware stack ownership, and advanced photonics.
• Real-world physical AI and robotics serve as a defensive investment. They capture value regardless of which software models win the market race.
• Investors can capture this structural shift toward intelligent physical systems and software via targeted funds like the ROBO Global Robotics and Automation Index ETF (ROBO) and the ROBO Global Artificial Intelligence ETF (THNQ).

The Shift to the Edge

During VettaFi’s Midyear Market Outlook Symposium, Zeno Mercer, head of robotics & AI research at VettaFi, noted that innovation is expanding beyond GPUs into areas like photonics, potentially reaching data centers, edge devices, and autonomous vehicles. The technologies are delivering value at the edge and even “disrupting the disruptors,” he said. 

For investors looking to capture the underlying software capabilities powering this edge revolution, the ROBO Global Artificial Intelligence ETF (THNQ) provides direct exposure to the foundational AI layers. 

There’s roughly $800 billion in planned hyperscaler data center capex and intense competition across GPUs, CPUs, and ASICs, as companies race to “own the stack,” Mercer said. The firms pushing the frontier of physics – at nano scales and in moving data and physical objects – are poised to command a growing share of global GDP. Consequently, AI is increasingly manifesting in the real world, moving off factory floors and out of data centers into everyday life via robotics and edge devices.

Defensive Investment and Policy Mandates

Importantly, physical AI can be viewed as a defensive investment. While many other sectors are seeing substantial concern about AI disrupting core business models and moats, the opposite is true in this space. First, automation benefits regardless of which AI models, data centers, or memory chips ultimately win. Each innovation leap boosts robotics capabilities and ROI and thus expands their addressable markets and accelerates the adoption curve. 

Second, robotics and physical AI are becoming a policy mandate. Mercer pointed to China and Japan’s domestic physical AI policies and U.S. investments in domestic supply chains, including drones and industrial resilience. This is a significant opportunity beyond data centers, aimed at real-world impact.

Offensive Growth and Future Applications

Conversely, robotics and AI also have an offensive growth angle. These technologies can help address disparities in access to high-quality services and care, leveling up capabilities and accessibility as robotics moves beyond industrial use into everyday consumer and government spending. While other markets currently mainly see replacement cycles, this is entirely net-new spend. To capture this physical inflection point, investors often look to the ROBO Global Robotics and Automation Index ETF (ROBO)

As AI tools accelerate research and more companies enter the space, the indexes underpinning THNQ and ROBO continually evolve to track global enablers and applications. The indexes focus on technology and market leadership, growth opportunity, and competitive dynamics. They are adding more autonomous systems such as drone platforms alongside traditional industrial robotics benefiting from reshoring. 

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vettafi.com is owned by VettaFi LLC (“VettaFi”). VettaFi is the index provider for THNQ and ROBO, for which it receives an index licensing fee. However, THNQ and ROBO are not issued, sponsored, endorsed, or sold by VettaFi. VettaFi and its affiliates have no obligation or liability in connection with the issuance, administration, marketing, or trading of THNQ and ROBO.

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