Artificial intelligence is one of the biggest investing themes of the decade. But there is a trap hiding inside the excitement: concentration risk. If too much of your portfolio is tied to one stock, one theme or one narrow slice of the market, strong returns can suddenly turn into a rough ride.
That matters even more in 2026, when mega-cap tech still does a lot of the heavy lifting for major sharemarket indices. It is easy to feel diversified when markets are rising. It is much harder to stay diversified when you look through your holdings and realise the same names keep showing up again and again.
Here is the key idea: you can believe in AI and still build a portfolio that is broader, steadier and less dependent on a handful of winners.
What concentration risk actually means
Concentration risk shows up when your returns depend too heavily on a small number of holdings. It can happen in obvious ways, like owning a lot of NVIDIA Corp (NASDAQ:NVDA). It can also happen in quieter ways, like holding a broad US index fund that already leans heavily on mega-cap technology stocks, then layering more AI exposure on top.
That is why portfolio construction matters. A theme can be right, and your portfolio can still be fragile.
AI is bigger than today’s headline winners
One of the most useful takeaways from the latest AI debate is that the opportunity is much wider than a few household names. AI demand runs through semiconductors, networking, power systems, software, industrial automation and the data centre buildout supporting it all.
For that reason, owning one AI ETF does not automatically solve the diversification problem. A fund like Global X Artificial Intelligence ETF (ASX:GXAI) can offer targeted exposure, but you still need to understand what sits underneath it. Is it concentrated in software? Mega-cap platforms? A small cluster of chip names?
A broader way to think about the trend is to spread exposure across more of the AI ecosystem. That could include infrastructure-focused ideas such as Global X Artificial Intelligence Infrastructure ETF (ASX:AINF) or supply-chain exposure through Semiconductor ETF (ASX:SEMI). The educational point is not that one approach is best. It is that AI exposure can come from more than one angle, and that matters when you are trying to reduce single-theme risk.
Diversification is more than owning more stocks
Buying more names is not the same as building a stronger portfolio. If all of those names are exposed to the same driver, you may still be making one big bet.
Better diversification usually comes from spreading risk across:
- different sectors
- different regions
- different company sizes
- different investing styles
- different sources of return
This is where many investors get surprised. Australian shares can be heavily influenced by banks and miners. US shares can be heavily influenced by mega-cap tech. Even broad market exposure can be more concentrated than it first appears.
That is also why small and mid-cap shares still deserve attention. Leadership changes over time. Yesterday’s market giants were often yesterday’s smaller companies, and the next wave of winners may not look like today’s.
Growth matters, but valuation still counts
AI remains a powerful long-term growth theme. That does not mean every AI-related investment is automatically attractive at any price.
When expectations become too aggressive, even great businesses can lead to disappointing returns. That is where a growth-at-a-reasonable-price approach can help. Instead of choosing between pure growth and pure value, the idea is to look for businesses with improving earnings, decent balance sheets and valuations that still make sense.
For investors who want a simple example of that style, Global X S&P World ex Australia GARP ETF (ASX:GARP) shows how growth and valuation discipline can sit in the same conversation. You do not need to abandon long-term themes. You just do not want to pay any price the market asks.
Build more than one engine in the portfolio
A resilient portfolio usually has more than one return driver. If everything depends on AI leadership continuing uninterrupted, the ride can get uncomfortable very quickly.
Income assets and real assets can help. Dividend-paying shares, credit exposures and covered call strategies may provide a different return profile to high-growth equities. Commodities can also play a role, especially when inflation or geopolitical stress returns to the market narrative.
For example, Physical Gold ETF (ASX:GOLD) illustrates how a real asset can behave differently from growth-heavy equity exposures. It will not replace AI in a portfolio, but it can serve a different job.
A quick portfolio check before adding more AI
- Look at your top 10 holdings across the whole portfolio, not just inside one fund.
- Check for overlap between your index funds and your thematic funds.
- Ask whether you own only mega-cap growth, or whether you also have exposure to mid-caps, income assets and real assets.
- Think about valuation, not just the excitement of the story.
- Decide what role each holding plays before you add it.
AI may well remain one of the defining investment themes of the next decade. But a good portfolio is not built by chasing the loudest theme until it dominates everything else.
The better goal is to keep AI exposure where it can help, while making sure the rest of your portfolio can still do its job if market leadership shifts. That is what diversification is supposed to do.
Further reading from Global X
