Your Diversified ETF Isn't as Diversified as You Think — and Here's the $700 Billion Reason Why

AI Concentration Risk

Editor's note: This is the first article in a four-part series on AI concentration risk in growth portfolios. The next articles examine the supply chain behind that concentration, the risks facing that supply chain and the corporate adoption timeline that will ultimately determine which companies in it earn their valuations.

You own an ETF with hundreds of holdings. That number is not a measure of how diversified you actually are.

Spread Across Independent Economic

Diversification protects you when your money is spread across independent economic outcomes. It does nothing for you when it is spread across the same outcome wearing different tickers.

Look inside a growth ETF today and that is exactly what you will find: Dozens of companies whose fortunes trace back to a single assumption — that the largest technology companies in America will keep spending hundreds of billions of dollars building AI infrastructure.

Diversified' Actually Means

What 'diversified' actually means

Take the Schwab U.S. Large-Cap Growth ETF (SCHG). It currently holds 197 stocks. On paper, that looks like broad exposure. In practice, its top 10 holdings account for around 51% of the fund, and technology alone makes up almost 50% of the portfolio.

7.31% Add Amazon AMZN

At the time of writing, Nvidia (NVDA) is 10.83% of the fund by itself. Apple (APPL) is another 8.93%. Microsoft (MSFT) is 7.31%. Add Amazon (AMZN) and Alphabet (GOOGL) and five companies account for roughly 35% of everything you own in that single ETF.

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Invesco's QQQ tells the same story with a different label. At the time of writing, its top 10 holdings run 45% of the fund, and technology alone makes up more than 50% of the total.

Companies Whose Revenue Increasingly

Nvidia is nearly 9% of the fund by itself. You did not buy the Nasdaq-100. You bought a concentrated bet on a handful of companies whose revenue increasingly depends on the same capital spending cycle.

The dependency investors don't see

Ticker Count Suggests Microsoft

Here is where it gets more concentrated than the ticker count suggests. Microsoft, Amazon, Alphabet and Meta (META) are projected to spend somewhere between $700 billion and $725 billion combined on capital expenditures in 2026, an increase of roughly 60% to 77% over 2025.

The overwhelming majority of that spending funds AI data centers, chips and networking equipment.

Arista Networks ANET Depends

That single number sits underneath nearly every AI-adjacent stock in your portfolio. Nvidia's revenue depends on it. Micron's (MU) revenue depends on it. Vertiv (VRT) and Equinix (EQIX) depend on it. Arista Networks (ANET) depends on it.

You may hold 10, 20 or 30 companies spread across a growth ETF, an S&P 500 fund and a semiconductor fund, and a meaningful share of every one of them is ultimately underwritten by the same four checkbooks.

Company's Revenue

One company's revenue is another's expense

This is the mechanic most investors miss. Microsoft's cloud revenue depends partly on selling AI capacity it built using chips bought from Nvidia. Nvidia's revenue depends on Microsoft, Amazon, Alphabet and Meta continuing to buy those chips at the current pace.

Data Centers Vertiv

Arista Networks and Micron sell into the same data centers. Vertiv and Equinix build and operate them.

None of these companies are competitors with each other. They are counterparties in the same transaction, repeated at scale. When you own several of them at once, you are not diversifying your exposure to AI. You are stacking your exposure to whether four companies keep spending at a pace none of them has ever sustained before.

Concentration Keeps Growing Without

Why this concentration keeps growing without you doing