What history, a $5 trillion valuation, and a lesson from fiber optics tell us about staying steady in the age of AI.
By Dan Goldberg, CFA, CFP®, CAIA, Diversified Portfolios Inc.
Key Takeaways:
• Does that mean I should avoid AI stocks? The goal is to participate in AI’s growth without overconcentrating in any single theme, which is exactly how we approach your portfolio.
• What is Diversified Portfolios doing about AI? We’re watching it closely. We blend growth exposure with value stocks, bonds, and alternatives designed to keep your portfolio aligned with your long-term goals, no matter how the AI story unfolds.
If there’s one topic dominating client conversations right now, it’s artificial intelligence (AI). The headlines are loud, the numbers are staggering, and the conversations we’re having with clients about it have never been more frequent. And it makes sense; AI has been one of the most influential investment themes of the last five or six years. While the long-term market impact remains uncertain, the growth of AI-related technologies is likely to remain an important topic for investors in the years ahead.
That’s why we wanted to take a moment to share exactly what we’re thinking about in terms of AI, what history tells us, and how your portfolio is already built with all of this in mind.
Is There an AI “Bubble?” What the Numbers Tell Us
Let’s start with some context, because the AI trade now touches almost every major index, and the scale of what’s happening is worth understanding.
- Nvidia recently touched a $5.5 trillion market valuation (Bloomberg as of June 2026), making it the largest company in the world.
- Broadcom, an AI-focused semiconductor company many people have never heard of, is now among the seven largest (Vanguard as of June 2026).
Roughly $2.5 trillion (Forbes, February 2026) is being invested globally in AI infrastructure this year alone, and it’s showing up in soaring stocks across the NASDAQ, the S&P 500, DOW, and other major indices.
Here’s where it gets interesting, and where I spend a lot of time thinking:
When a company is valued at $5.5 trillion, investors are pricing in an enormous amount of future growth going exactly right. Nvidia generated about $75 billion in fiscal year 2025, which is remarkable. Nvidia is truly a “category killer” and is an incredible American success story. But the valuation puts a very large multiple on top of recent earnings, meaning the market is betting heavily on continued, uninterrupted growth from here. A lot of the good news, as I like to say, is already “in the barn.”
When that much future growth is already priced in, even a small stumble can move markets in a big way, and that shapes how we think about risk from here.
What History May Tell Us About the Future of AI Returns
We’ve been here before, and I think the fiber optic buildout is the most useful parallel.
In the late 1990s, investors correctly recognized that fiber optics would transform communications. They were right about the technology. The mistake was assuming every company tied to the buildout would be a great investment. By the early 2000s many of the companies that built it went bankrupt.
The lesson isn’t that transformative technology is a bad investment. It’s that the companies leading a technological revolution at any given moment aren’t always the ones that define the industry 20 years later. AI could continue doing remarkable things, and I believe it will. But that doesn’t guarantee Nvidia remains the largest company in the world in 10 or 20 years. Chip technology evolves, competitors emerge, and a different approach to how AI is built could shift the outcome entirely.
If you look at the top companies by market cap across the last 120 years, the names are always changing. Eastman Kodak was once one of the most dominant companies in the world. GE was the largest as recently as 2000. The point isn’t that today’s giants will fail; it’s that concentrating heavily in whatever has worked for the last decade is a different kind of bet than it might feel like in the moment.
The Concentration Question Worth Asking
Here’s something I want every client to understand about how the major indices work right now.
The S&P 500 tracks 500 companies, but it’s weighted by market cap, meaning the largest companies carry the most influence. As of June 15th, 2026, the top six names in the S&P 500 account for roughly 34% of the entire index (Blackrock). Every single day, about a third of the S&P’s movement can be explained by just six companies.
This is why we’re careful when clients tell us they own Nvidia, Apple, Google, and Microsoft individually, and also own the S&P 500. On the surface, that sounds diversified. In practice, you’re making the same trade several times over, stacking exposure to one theme across multiple accounts. The S&P 500 has rarely been this concentrated in the top names, or this correlated to tech and the NASDAQ (Goldman Sachs as of May 2026)
Two Potential Scenarios
I’ll also name something people don’t talk about enough: what happens if AI works out too well?
There are two potential paths where even a successful AI future could create headwinds for the stocks driving today’s excitement.
- The first is job displacement. If AI takes over enough white-collar work, you run into a real economic tension. People without jobs can’t support an economy built on consumer spending, because two-thirds of the American economy is consumption (Citrini, April 2026)
- The second is regulation. We’ve seen it before, with big tobacco for example. At some point, if guardrails go up, we expect this would compress valuations.
None of this is a prediction, but it’s part of why we don’t want any single theme, no matter how exciting, to be too large a part of your financial picture.
The All-Weather Approach
We’re not anti-AI, and we’re not asking you to avoid it. Your portfolio participates in this growth, and that’s intentional. What we’re focused on is balance.
At Diversified Portfolios, our goal is help manage costs, taxes and investment risk for the people we serve. Alongside growth-oriented holdings, we build in:
- Value stocks, which have historically exhibited different risk and return characteristics than growth stocks.
- Bonds and alternatives, which provide stability when any single theme runs hot or reverses quickly.
- International exposure, where we’ve seen steady strength in recent months. International stocks also come with much cheaper valuations.
The goal is what we call an all-weather portfolio: one that holds up across a variety of environments, whether AI keeps running, levels off, or faces the kind of headwinds I described above.
Our philosophy has always been to lower the ceiling a little of your investment portfolio in order to raise the floor a lot. We do not know when or where risk will show up via poor market returns, but history suggests it will at some point.
Nobody comes to us hoping to double their money at the risk of losing it all. They come because they want a financial plan that works consistently, and a portfolio steady enough that a down year doesn’t mean canceling the big trip you have been looking forward to.
Related: Click here to read “Passing the Torch: Navigating Intergenerational Wealth in the AI Era”
What’s On the AI Horizon?
We believe AI-related developments may be an important factor influencing market returns over the coming years, although future market performance is uncertain. We don’t have a crystal ball, and we won’t pretend otherwise.
What we do have is a framework designed help you navigate a variety of market environments and support your long-term planning goals, no matter what the headlines say.
If the astronomical returns of AI stocks has been on your mind, or if you have anything else you’ve been sitting with, please reach out. That’s exactly what we’re here for.
And if you’re not yet working with Diversified Portfolios and want to learn more about how we think about investing for the long term, we invite you to start the conversation with a complimentary Financial MRI.
Investing involves risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results. Opinions expressed are current as of the publication date and are subject to change without notice. Forecasts and forward-looking statements are not guarantees of future results.
