AI mania grips Wall Street: But is it the right fit for your investments?

The rally, concentrated in AI mega-caps like Nvidia, Apple, Microsoft, Alphabet and Meta, is raising concerns

- Ayneet Kaur

The extraordinary rally in US technology stocks over the past few years, especially those linked to artificial intelligence (AI), has left investors wondering whether they are witnessing the formation of another classic market bubble.

For Indian investors, the concern is sharper because most international exposure from the country is concentrated in US equities, particularly Nasdaq-heavy funds. While exposure to the world’s largest economy is important, the current environment suggests that investors must think more about global diversification, rather than anchoring portfolios to a single market and a single theme.

The rise of mega-caps

The US market rally has increasingly become a narrow one, powered by a small group of Al-linked mega-caps. While mega-caps are defined as firms with over $200 billion market capitalization, 10 US stocks currently hold a market cap of over $1 trillion each, including names like Nvidia Corp., Apple Inc., Alphabet Inc., Microsoft Corp., and Meta Platforms Inc.

Over the last three to four years, these companies have surged on the back of aggressive spending on data centres, chips, and computing infrastructure. The scale of this concentration is unprecedented. “Al-related firms have contributed almost 80% of US equity gains in 2025, with just the five biggest Al mega-caps making up around 30% of the S&P 500 and 20% of the MSCI World Index, the highest concentration in nearly 50 years,” said Ankur Punj, managing director and business head at wealth management platform Equirus Wealth.

The US tech sector accounts for around 35% of total US market capitalization, and the 10 largest US companies comprise more than 20% of global equity value. Such dominance is extraordinary by historical standards and raises the risk that returns are being driven by an increasingly narrow part of the market.