AI drives extraordinary market focus and raises tough questions for everyday investors.
For a moment this week, Larry Ellison, co-founder of US cloud computing company Oracle, has become the world's wealthiest person. After Oracle's shares lost 43% in a day, Octoenarian Tech Titan temporarily overtakes Elon Musk, adding around US$100 billion ($167 billion) to his wealth.
reason? Oracle has signed a deal to provide a massive Openai of USD 300 billion (NZ $503 billion) in computing power over five years.
Ellison's spotlight moment was fleeting, but it illuminated something much more important. AI has created an extraordinary level of concentration in global financial markets.
This raises an unpleasant issue not only for seasoned investors but also for everyday Australians who hold stocks in AI companies through superannuation. To what extent are “safe” and “diverse” investments in the AI boom exposed?
The man who built internet memories
As billionaires progress, Ellison is not as popular as Tesla, SpaceX's Musk, or Amazon's Jeff Bezos. But he has built his fortunes from enterprise technology for almost 50 years.
Ellison co-founded Oracle in 1977, transforming it into one of the world's largest database software companies. For decades, Oracle has provided attractive but essential plumbing that continues to run many corporate systems.
The AI revolution has changed everything. Oracle's cloud computing infrastructure helped businesses store and process huge amounts of data, making it a critical infrastructure for the AI boom.
Every time a company trains large language models or runs machine learning algorithms, it requires a huge amount of computing power and data storage. That's exactly where Oracle is superior.
When Oracle reported stronger than expected quarterly revenue this week, its stock price skyrocketed when it was driven primarily by rising demand in AI.
The response wasn't just Oracle's business fundamentals. Since ChatGPT's public debut in late 2022, it has been about the entire AI ecosystem that has restructured its global market.
Large AI concentration
Oracle's narrative is part of a much larger phenomenon that shapes the global market. The so-called “magnificent Seven” tech stocks (Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, Nvidia) control the unprecedented share of major stock indexes.
Since the beginning of 2025, these seven companies have accounted for approximately 39% of the total US S&P 500 value. For the high-tech Nasdaq100, this figure is a whopping 74%.
This means that you invest in exchange trade funds that track the S&P500 index and are often seen as the gold standard for diversified investments, whether you are making a bet that is increasingly concentrated on AI.
Are we at ai 'bubble'?
This level of concentration has not been seen since the late 1990s. At the time, investors were wiped out by “Dot-Com Mania,” bringing the tech stock price to an unsustainable level.
When reality finally hit its hit in March 2000, the tech-heavy Nasdaq crashed 77% in two years, wiping away the wealth of wealth.
Today's AI concentration raises some similar red flags. Nvidia, which manages an estimated 90% of the AI chip market, is currently trading at more than 30 times its expected revenue. This is expensive for any stock, not to mention those who have hopes for the whole technological revolution.
However, unlike the dot-com era, today's AI leaders are profitable companies with real revenue streams. Microsoft, Apple, Google are not cache burning startups. They are established giants who generate significant profits while using AI to strengthen existing businesses.
This makes the current situation more complicated than a simple “bubble” comparison. The academic literature on market bubbles suggests that true innovation is often in line with speculative excess.
The question is not whether AI is transformative. That's obvious. Rather, the question is whether the current valuation reflects realistic expectations regarding future profitability.
Hidden exposure for many people
For Australians, the issue of AI concentrations hits significantly closer to home through our retirement pension system.
Many options in a balanced superfund include a substantial allocation to international stocks, typically 20-30% of the portfolio.
When a superfund buys international stocks, it often gives a severe exposure to the same AI giant who controls the US market.
Concentrated risk goes beyond direct investment in high-tech companies. Australian mining companies such as BHP and Fortescue have become indirect AI players as copper, lithium and rare earth minerals are essential to AI infrastructure.
Even diversifying away from technology cannot completely escape AI-related risks. Research on portfolio concentrations shows that diversification benefits are significantly reduced when key indicators are dominated by several large stocks.
If AI stocks are significantly revised or crashed, it could disproportionately affect the eggs in Australian retirement nests.
A check of reality
This situation represents what is known as the “whole-body concentration risk.” This is a specific form of systematic risk that diversified investments appear to correlate through common underlying factors or exposures.
It appears that all of the housing markets in various regions have collapsed at the same time, reminiscent of the 2008 financial crisis. That's because they were all exposed to subprime mortgages with high risk of default.
This doesn't mean that everyone is in panic. However, regulators, superfund trustees, and individual investors all need to be aware of these risks. Diversification only works when returns come from a wide range of companies and industries.
Angel Chang is a professor of finance at RMIT University in Melbourne. Jason Tian is a senior lecturer at Swinburne Institute of Technology in Melbourne.
This article has been republished conversation Under the Creative Commons license.
