You’re Probably Already Invested in AI

I spoke with a prospective client last week who had a seemingly simple request: “I don’t want to invest in any AI companies.”

I’ve heard variations of this sentiment quite a bit lately from people worried about the technology’s impact on jobs, skeptical of the hype, or uncomfortable with the thought of AI (artificial intelligence) overtaking our world. I get it. I grew up watching The Terminator.

I can usually find ways to build a thoughtful portfolio that meets the specific preferences of clients by avoiding certain stocks or sectors. But the problem with this request is that U.S. stock market is deeply integrated with artificial intelligence. At this point, avoiding AI in a diversified portfolio is nearly impossible—and inadvisable.

The Market Is the AI Trade

If you’ve read my articles, you know that I preach broad diversification. It’s really hard to consistently pick winning stocks, so I generally advise most investors to adopt a portfolio of low-cost funds that track market indexes such as the S&P 500.

If you do this, it’s impossible to avoid AI. The U.S. stock market is currently dominated by a small cluster of companies that are driving and directly benefiting from the AI revolution.

Apple, Microsoft, Nvidia, Alphabet (Google), Amazon, Meta (Facebook), and Broadcom collectively make up roughly 35 percent of the entire S&P 500 by market value. Each of these companies is either building AI infrastructure, selling the hardware that powers AI, or deploying AI across its core products.

This group’s footprint on market returns is even larger than its market share suggests. Since the current bull market began, in late 2022, well over half the S&P 500’s total gains have come from these companies. If you’ve owned a broadly diversified U.S. stock market fund over the past few years, to a large degree the growth in your portfolio is an AI story.

Image created with ChatGPT

To understand just how deeply AI has penetrated the economy, consider the spending commitments of just five technology companies. Alphabet, Amazon, Meta, Microsoft, and Oracle are projected to spend $739 billion in 2026, largely directed toward AI data centers, chips, and infrastructure. That amount is larger than the entire economic output (GDP) of many countries, including Belgium, Ireland, Sweden, and Israel.

Much of this spending is flowing directly to semiconductor companies such as Nvidia. In its most recent quarter, Nvidia reported revenue of more than $80 billion—up 85 percent year-over-year—with an operating margin of 64 percent. Its data center business alone generated $75 billion in that single quarter, remarkable for a company that was barely known outside gaming circles just five years ago.

Two Different Economies

It's worth pausing on those numbers, because for many Americans, none of this has shown up in their daily lives.

The U.S. labor market has slowed. Monthly job growth averaged only about 100,000 new positions over the past year and a half—a fraction of the pace seen during the post-pandemic recovery. Most of that growth has been concentrated in education and health services, while other sectors have produced little to no gains.

Meanwhile, inflation has proved stubborn. I could go into the data, but if you buy gas or groceries I don’t need to tell you that prices have risen.

In other words, we are living through two divergent economies. In the AI economy, the numbers are extraordinary. Earnings, capital spending, and stock prices are at or near record highs. In the everyday economy, many Americans are grappling with higher prices and a weak job market.

The disconnect is real, and it helps explain investor skepticism. But it also illustrates why owning the broader market matters. Broad diversification means capturing the growth happening in the stock market, wherever it occurs.

What This Means for Your Portfolio

I’m not making the case that investing in these companies is without risk. The valuations of major technology companies are elevated, and history reminds us that even genuinely transformative technologies can produce painful losses for investors who overpay.

But the notion that you can “avoid AI” in your investment portfolio is increasingly a fiction. The U.S. stock market and the AI economy are deeply intertwined, and they’re becoming more so with each passing quarter. Selling out of major U.S. stock funds to sidestep AI would mean abandoning a huge swath of the market and walking away from returns that have driven portfolios higher in recent years.

Even those of us with reservations about AI must recognize the outsized role it now plays in the U.S. stock market.