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The artificial intelligence trade—or the persistent growth of stocks linked to AI—has been the driving force of the US market over the past four years. But it’s no longer limited to large US growth stocks. The effect has spread to other corners of the global market. More companies are benefiting from the advancement of the technology, but that’s made it more difficult to diversify away.
Boom
The growth of stocks linked to AI started to take off in early 2023. The software behind the technology primarily belongs to private companies like OpenAI and Anthropic, but the microprocessors and chips that make it possible are designed and manufactured by large publicly traded companies. Nvidia NVDA makes a specific type of chip that is suited to the technology. Its stock price skyrocketed by triple digits in 2023 and 2024.
Others have come along for the ride. Chip designer and manufacturer Broadcom AVGO returned more than 100% in both of those years as demand for its chips increased. Alphabet GOOGL and Meta Platforms META have made their own attempts at furthering the technology through software. Alphabet GOOGL even went as far as to develop its own chips.
Their growth is the major reason that the US market is so top-heavy today. Exchange-traded funds tracking the broader US market, such as iShares Core S&P Total U.S. Stock Market ETF ITOT had one-third of their assets parked in their 10 largest names at the end of September 2026. Likewise, the 10 largest stocks in Vanguard S&P 500 ETF VOO accounted for almost 39% of the ETF. Those levels of concentration are among the highest on record and easily surpass the concentration at the peak of the late 1990s internet boom.
Said another way, the direction of the US market is dependent on a small collection of stocks tied to the growth of a single technology. That has sparked fears among some investors about what happens if AI doesn’t live up to the expectations baked into the prices of the market’s darlings.
In a way, that’s started to happen. Nvidia NVDA returned 39.0% in 2025, and 22.8% through the first nine months of 2026. Still good rates of return, but considerably lower than what it returned in 2023 and 2024. The total returns from Broadcom AVGO, Alphabet GOOGL, and Meta Platforms META have followed a similar trend.
The Expansion
As their growth has cooled down, others have picked up the slack. The demand for semiconductors has spread to other smaller stocks in that industry. Micron Technology MU, Sandisk SNDK, Western Digital WDC, and Intel INTC, among others, performed spectacularly over the past 18-24 months. Many had struggling businesses and had been classified as value stocks for years, and their rise has pushed many of them toward the growth side of the market.
Certain foreign stocks have also been swept up in the growth of AI. South Korea’s Samsung Electronics OTCM and SK Hynix SKHY, both among the leading suppliers of memory chips, have grown immensely over the past two years and now count themselves among the largest stocks in the foreign stock market. Such memory chips are used in AI processors made by Nvidia NVDA.
It’s not just semiconductors, though. Certain companies in certain industries have started to benefit. Large industrial stocks such as Cummins CMI and Caterpillar CAT have seen their stock price and valuations grow meaningfully with demand for large generators used as backup or prime power for data centers. And there’s a similar trend starting to emerge among construction firms that are being contracted to build those data centers.
All that says the growth story has spread to stocks outside of the US and industries outside of technology and semiconductors. From that perspective, the influence of AI is becoming more difficult to avoid.
Large-value funds used to do the job quite well, but Apple AAPL, Microsoft MSFT, and Amazon.com AMZN—large stocks that are indirectly tied to AI—have started to trickle into some large-value index-tracking ETFs such as iShares Russell 1000 Value ETF IWD. That isn’t a mistake. Those companies are growing slower than those directly tied to AI.
Index composition has downstream effects. Active managers that benchmark themselves to indexes like the Russell 1000 Value ETF IWD now have to contend with some of the market’s largest tech names. Capital Group Dividend Value ETF CGDV had a little over 28% of its portfolio in shares of Microsoft MSFT, Nvidia NVDA, Meta Platforms META, Broadcom AVGO, and Alphabet GOOGL at the end of September 2026. Likewise, Amazon.com AMZN, Microsoft MSFT, Apple AAPL, and Meta Platforms META represented a little more than 19% of JPMorgan Active ETF’s JAVA portfolio.
Steer Clear
None of this means that ETFs tracking these markets, or active managers that dabble in large tech stocks, are a bad investment. Stocks are risk assets, and they’re prone to a variety of perils. Sometimes, it’s deep drawdowns or high levels of volatility. Other times, it’s intense concentration or a heavy reliance on a single technology. The ETFs tracking these markets, or those run by active managers, can remain good long-term holdings if they’re consistently following their process. They’ve weathered such risks in the past and should continue to do so.
Diversifying away from large stocks tied to AI is difficult. Many of them determine the direction of the US and foreign markets. Bond ETFs are a simple way to get the job done. They’re also less volatile than stocks, and their yields are more attractive than they have been in years. That means they’re far less likely to incur losses when the stock market dives, like they did in 2022. Vanguard Total Bond Market ETF BND and Fidelity Total Bond ETF FBND are great starting points, and either can be used as a core bond ETF.
Stock ETFs are much tougher due to the spread of AI-related stocks. Small caps look like one of the few segments of the market that don’t have a lot of exposure to the growth of AI, and there are a few ETFs that serve as good starting points. IShares Core S&P Small-Cap ETF IJR and Vanguard Morningstar Small-Cap ETF
VB
are both good index-tracking options. They provide broad exposure to the small-cap market and are less prone to costly trades among the smallest names that can eat away at their total return.
Actively managed alternatives include DFA US Small Cap Portfolio – ETF Class Shares DFAS and Avantis US Small Cap Equity ETF AVSC. Both diversify broadly within the small-cap segment and avoid stocks with poor profitability and high valuations. The Avantis ETF weights stocks in a way that favors cheaper and more profitable stocks. That pushes it toward the value side of the Morningstar Style Box, so the ETF lands in the small-value category.