The Second Wave of AI Investing

Artificial intelligence has dominated market narratives over the past few years. Assets have poured into technology-focused ETFs, AI infrastructure strategies, semiconductor funds, and other investments designed to capture the companies building the hardware and software behind the AI revolution. Put simply and bluntly, it has been a remarkable run.

Investors’ focus on the technology powering AI has made sense, as major technological revolutions have rewarded the ‘builder’ companies that make it possible. But history also tells us that this is rarely where the story ends.¹

As transformative technologies mature, they tend to spread throughout the broader economy, creating productivity gains in industries that initially had little to do with developing the technology itself. Put another way, the first phase is about building the platform, while the second phase is about putting that platform to work.

With this in mind, we think there’s a top contender for the ‘second wave of AI investing’: Healthcare.

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A Better Way Forward for Passive Investors

Passive investing using ETFs has become popular, allowing virtually every investor to participate in the stock market with an ETF index fund that tracks the S&P 500. Unfortunately, these funds make it difficult to beat the market—because an index fund essentially is the market.

Zacks Advantage offers a better way forward: We have always been committed to a research-driven investment process, and we have refined our active investment experience to optimize the passive investment realm. Our actively managed robo advisor offers:

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Learn more with our free guide, A Better Way Forward: Actively Managing Passive Index Funds. ²

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As many investors perhaps understand, healthcare has consistently been one of the world’s most innovation-driven industries. Breakthrough therapies, advanced medical devices, robotic-assisted surgery, precision medicine, and genetic sequencing have steadily reshaped patient care for decades. Today, artificial intelligence is becoming another powerful tool that could accelerate the pace of innovation.

Rather than replacing healthcare professionals, AI is increasingly being deployed to solve some of the industry’s most persistent challenges. Some examples include:

• Researchers using AI to help identify promising drug candidates more quickly, potentially shortening parts of the traditionally lengthy drug discovery process
• Medical imaging platforms becoming more sophisticated at identifying abnormalities, helping physicians detect diseases earlier
• Hospitals beginning to automate administrative tasks that consume valuable clinical resources, while AI-assisted analytics help providers better manage patient populations and improve operational efficiency.

These applications may not generate the same headlines as the latest AI model or semiconductor breakthrough, but we think they have the potential to create meaningful productivity gains across an industry that represents nearly one-fifth of the U.S. economy.

Corporate fundamentals have remained encouraging as well. 89% of S&P 500 healthcare companies exceeded earnings expectations over the past four quarters, ranking among the strongest sectors in the market. Yet despite that solid earnings performance, healthcare has largely remained outside the spotlight as investor attention has centered on AI infrastructure and large technology companies.

That disconnect highlights an important point for investors, which is that innovation doesn’t always occur where the market’s attention is most heavily focused.

History offers numerous examples of this in practice. The internet initially benefited networking companies and hardware manufacturers before transforming retail, advertising, financial services, entertainment, and communications. Smartphones first rewarded handset manufacturers before reshaping industries ranging from transportation and travel to payments and media. The technologies themselves were groundbreaking, but many of the biggest long-term economic benefits ultimately accrued to companies that learned how to use them most effectively.

We think it’s possible, or perhaps probable, that artificial intelligence may follow a similar path.

Bottom Line for Investors

Healthcare also offers something many investors seek during periods of market concentration: diversification. While technology and healthcare are both innovation-oriented sectors, they have historically exhibited relatively low return correlation with one another. In other words, they have often responded to different economic drivers and market environments. That distinction can become increasingly valuable as markets mature and leadership begins to broaden beyond a relatively small group of companies or industries.

The healthcare sector also benefits from structural tailwinds that are largely independent of the AI investment cycle. Aging populations across developed economies continue to increase demand for healthcare services. Advances in biotechnology, diagnostics, and medical devices continue to expand treatment options.

This is not to say that healthcare will suddenly replace technology as the market’s leadership group, nor does it imply that every innovation theme outside of AI infrastructure will outperform. Markets rarely rotate in such a simple or predictable fashion. Instead, it illustrates how transformative technologies often create opportunities that extend well beyond the industries that first capture investors’ attention.

That’s one reason diversified ETF investing can be such an effective way to participate in long-term secular themes. Rather than relying on a handful of companies or narrowly focused industries, diversified sector exposure allows investors to participate as technological advances begin creating value across multiple parts of the economy. As artificial intelligence evolves from a story about building the technology to one about applying it, opportunities may become increasingly widespread.

In recent years, passive investing has become a popular approach, allowing virtually every investor to participate in the stock market with an ETF index fund that tracks the S&P 500.

However, a purely passive approach cannot beat the market (because it basically is the market). That’s why Zacks Advantage offers an actively managed robo advisor that:

• Invests exclusively with ETFs
• Uses technology to recommend the appropriate mix of equities and bond ETFs to help achieve your investing goal and specific risk tolerance
• Lowers fees and expenses

Get our free guide, A Better Way Forward: Actively Managing Passive Index Funds ³, to learn the 4 issues that can hold back returns for passive investors, and how Zacks Advantage can help you overcome them.

Download our FREE Guide³

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¹ Black Rock. May 15, 2026.

² Zacks Investment Management may amend or rescind the A Better Way Forward: Actively Managing Passive Index Funds guide offer for any reason and at Zacks Investment Management’s discretion.

³ Zacks Investment Management may amend or rescind the A Better Way Forward: Actively Managing Passive Index Funds guide offer for any reason and at Zacks Investment Management’s discretion.

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