There is no question that artificial intelligence is one of the most powerful forces shaping the financial markets today. And one of the greatest temptations during a powerful investment cycle is to abandon diversification because one area of the market appears to offer superior returns. The stronger that area performs, the more convincing the argument becomes. Investments in AI are at the center of this conversation.
Through August 24, 2026, the S&P 500 has gained approximately 11.8% for the year and remains near record highs. The Nasdaq has also gained approximately 11.8%, while the semiconductor sector, at the center of the infrastructure required to build and operate artificial intelligence, has risen substantially more.
Those substantial returns lead to a temptation toward concentration in that area. But it is precisely that concentration, not the technology itself, that creates the real risk.
You Likely Own More Than You Think
The 10 largest companies in the S&P 500 now make up roughly 40% of the entire index, close to double their share a decade ago.1 Many of those names have artificial intelligence as a central component of their businesses.
In a typical 65% stock and 35% bond portfolio, for instance, meaningful AI exposure is already present without a single deliberate decision having been made. And it is likely concentrated in fewer companies than you would have chosen on purpose.
Consider a fairly ordinary investor. Let’s say they own an S&P 500 index fund in their brokerage account, a large-cap growth fund in their Roth IRA, and a target-date fund inside their company 401(k). Owning three separate funds in three different accounts is likely to provide a comfortable sense of diversification.
But the same handful of companies sits at the top of all three funds, creating substantial overlap. They did not buy one position in those businesses; they bought it three times without being aware they had even purchased it once. So, the question is rarely “How do we get exposure?” It is “Do we know how much we have already, and does it align with our goals?”
The Risk Has a Name, and It Isn’t AI, It Is Concentration
We tend to talk about “AI” as though it were one thing to own. It isn’t. It is a stack of very different businesses across different industries: the companies designing the chips, the foundries manufacturing them, the cloud providers renting out capacity, the data centers themselves, the utilities and equipment makers supplying power, the networking hardware moving data between them, and the software companies building on top of all of it. AI is an entire investment ecosystem.
The parts of that ecosystem will not share the rewards equally. Some may earn extraordinary returns for decades. Others may build something genuinely essential, at enormous expense, and watch the profits settle a layer above or below them. The winners and losers are not knowable today, by us or by anyone else.
During the first Industrial Revolution a similar story unfolded. The railroads were a defining industrial investment of the 19th century. They collapsed distance and created national markets where only regional ones had existed, thereby making entire industries possible. Anyone who concluded in 1870 that the railroads would remake American commerce was right. But “the railroads” were not one investment either; they, too, were their own investment ecosystem. They were made up of the companies laying the track, the steelmakers supplying the rail, the builders of locomotives, the terminals and freight houses, the shippers who put the whole thing to use, and so on.
A great many of the companies laying that track went bankrupt.2 They overbuilt, borrowed too much in the process, and competed away the profits. After their bankruptcies, the tracks they built remained, and the country got everything the railroads had promised. Instead, the profits went to the shippers who gained access to cheaper transportation and to the buyers who bought those railroads out of bankruptcy for pennies, but not always to the original investors who paid to build them.
While companies laying track was the obvious place to invest your money at that time, in the long run, some of the greatest investment opportunities emerged not among the companies building the infrastructure, but among those that found the most profitable ways to use it.
Similar stories were repeated with the automobile, commercial aviation, and, more recently, the internet. In each case, the investors who were genuinely hurt were not the ones who believed in the technology as a whole, but rather, those who concentrated too much money in the wrong companies or in one part of the whole system.
Similarly, common wisdom might say that the obvious place to invest in “AI” in this new revolution in 2026, is in chipmakers. That may well prove to be correct, but it may also turn out that the durable profits accrue to power companies, the software firms, or simply to the ordinary businesses that use these tools better than their competitors. So, we push for diversification within this ecosystem.
Investment portfolios are rarely damaged by owning the wrong thing. They are ruined by owning too much of it.
Invest in AI Wisely
Framed that way, the wisest path forward when considering investments in AI is far more constructive than simply “be careful what you choose.” Rather, it is a repeat of the age-old investment wisdom, “diversify”. Holding your obvious chipmakers alongside a broadly diversified portfolio where the rest of the AI ecosystem lives, in the retailers, distributors, logistics firms, and businesses that stand to use these tools to operate more profitably, makes the most sense.
That being said, dedicated AI exposure, even with breadth across the many layers, should be the satellite of your portfolio, and the traditional diversified portfolio should be the core.
In fact, for many investors, a well-constructed portfolio diversified among stocks, bonds, large, small, international, domestic, real estate, and commodities remains entirely appropriate. And it likely already holds sufficient exposure to AI and AI-tangential businesses to produce good returns. No change needs to be made.
It is worth remembering, however, that diversification will inevitably mean that an investor does not capture every dollar of upside when one sector dramatically outperforms. And that is not a failure of diversification, it is the price we pay for not having to correctly predict which investment theme will dominate the market next.
So, for other investors, particularly those with sufficient liquidity, a long investment horizon, and the financial capacity and temperament to tolerate substantial volatility, may want to consider additional exposure to AI and AI-tangential companies.
For qualifying clients who meet those criteria, Whelan Financial offers a dedicated AI infrastructure investment strategy consisting of 52 individual companies across the artificial intelligence ecosystem.
It is intentionally broader than buying a handful of recognizable names, precisely because identifying the eventual winners in advance is the part almost everyone gets wrong. It spans the layers described above: businesses directly involved in artificial intelligence alongside those positioned to benefit from their continued expansion.
We do not view this as a replacement for a diversified portfolio. We view it as a satellite allocation within one, deliberately sized, and deliberately secondary to the plan that funds your goals.
Where Our Advisors Help
The “correct AI position size” comes down to a question that is difficult to answer on your own: how much of your financial future currently depends on one story going a particular way?
Answering it requires looking through every fund you own to see what is actually inside, adding up the overlap, and comparing the total to the amount of risk your plan can genuinely absorb. That is precisely the work our advisors do.
Artificial intelligence may well change the world, and there is no reason your portfolio should sit it out. The goal is simply to participate in it without betting your financial future on a single prediction about what comes next.
If you would like to know how much AI exposure you already own, or are interested in our AI infrastructure investment strategy, please contact one of our advisors.
- Index concentration figures reflect S&P 500 constituent weightings as of August 2026. Collected using YCharts data.
- “Panic of 1893,” EBSCO Research Starters. https://www.ebsco.com/research-starters/history/panic-1893
Whelan Financial is a registered investment adviser. This material is for educational and informational purposes only and does not constitute investment, tax, or legal advice, or a recommendation to buy or sell any security. References to a Whelan Financial investment strategy are descriptive only; no strategy is suitable for all investors, and eligibility is determined through an individual suitability review. Strategies concentrated in a single theme or sector carry additional risk, including greater volatility and the risk of loss of principal. Diversification does not ensure a profit or protect against loss. Past performance is not indicative of future results.
Authored by Whelan Financial
Preliminary language, parameters, and edits for this blog were crafted by the Whelan Financial team, with the help of generative AI.
