The Nasdaq Just Hit a Record High -- Are You Overexposed to AI Without Realizing It?
Technology stocks have dominated market headlines over recent years, as companies in the so-called “Magnificent 7,” including Microsoft, Apple and Meta Platforms, have helped propel the Nasdaq Composite to new all-time highs.
Although some companies are more obviously AI-focused than others, simply avoiding stocks like Nvidia doesn’t necessarily protect you from overexposure to AI. Regular reviews can help determine just how much AI is driving your portfolio.
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AI Beyond the Obvious Names
Chip companies like Nvidia sit at the very cutting edge of the AI buildout, building the chips that serve as the actual “brains” of artificial intelligence. Beyond these direct elements, plenty of ancillary companies also play integral roles in the ongoing tech revolution.
To move enormous amounts of data, AI data centers need advanced networking equipment. They also consume immense amounts of power and cooling systems, bringing a flurry of infrastructure companies and utilities into the mix.
In other words, plenty of ordinary-looking, some would even say “boring” companies are direct beneficiaries of the AI boom.
The immense scale required by the buildout helps explain why so many more traditional companies are now involved with the AI buildout. According to McKinsey, nearly $7 trillion could be needed for data centers through 2030. That money attracts companies providing everything from power equipment to cooling systems to get their own piece of the pie.
Some of these companies may still have considerable operations in non-tech areas, which can make them look like “non-AI” investments at first glance. If a growing portion of their income comes from the same boom, however, they can still be subject to the ups and downs of that volatile industry.
Funds May Not Be a Safe Place To Hide
Funds and ETFs are often marketed as diversified investments, as they traditionally hold tens if not hundreds of individual securities. As the AI boom continues to expand, many of these investments have more AI exposure than the average investor can tell simply from a fund name.
Take the popular Invesco QQQ Trust ETF (QQQ), which tracks the Nasdaq-100. Nasdaq estimated, based on its own AI-themed indexes, that at least 70% of the Nasdaq-100’s weight was concentrated in AI-themed companies as of June 30. Those companies stretch across semiconductors, cloud computing, networking, power, telecommunications, and other parts of the AI ecosystem.
That 70% figure shows just how far the AI investment theme has spread through the index, and indeed through the market as a whole. And while some investors think of the QQQ as a “tech index” and are perhaps not surprised at these numbers, AI creep has extended into a number of funds and ETFs that aren’t obviously tech-related.
Imagine an investor who owns a Nasdaq-100 fund, a broad-market index fund, a technology fund and a global large-cap fund. That might look like four distinct components of a diversified portfolio, but in reality, many of the same AI-related companies can show up again and again.
Find Out How Much AI You Actually Own
There’s nothing wrong with owning a lot of AI or tech stocks in your portfolio. In fact, over the past few years, that’s been a great place to be. The problem comes in when you think you are diversified away from AI exposure but actually own far more of it than you intend.
One way to find out the size of your actual allocation is to pull up the holdings of every mutual fund and ETF you own. In most cases, you can simply scan the top-10 holdings. The thing you’re looking for is if these investments own the same stocks over and over. If your broad-market fund, global stock fund and Nasdaq ETF all have Microsoft, Alphabet and Nvidia in the top-10 holdings, you might be overweighted.
Next, look beyond the company names. An industrial company selling electrical equipment to data centers or a business supplying cooling systems could give you additional exposure to AI spending even though neither one would normally be described as an AI stock.
With Nasdaq at all-time highs, those who have owned AI-related stocks have generally participated in big gains. Knowing exactly how much AI exposure you have can give you a better idea of how your portfolio might react if the trade turns the other way.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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