AI is changing how investors spread risk across markets, FT says

In short: AI is concentrating more investment in a small group of big tech companies, making it harder for investors to spread risk.

What's going on

Investors have spent years asking how artificial intelligence might change other industries. A new Financial Times opinion column argues that AI has already changed investing itself, by pulling money and attention toward the same set of companies across stocks and bonds.

One visible sign is the wave of large stock market listings tied to AI. The column points to major public debuts and the expectation that other big AI companies could list next. When huge new companies enter the stock market, big index funds often have to buy them because they track popular market indexes (like a shopping list that updates automatically).

The Financial Times also says the bond market is being reshaped. Bonds are a form of borrowing, similar to an IOU, and big tech firms like Amazon, Alphabet, and Meta have sharply increased how much they have borrowed, to about $300bn in outstanding debt, according to the column. Some bond managers warn that bond funds usually have strict limits on how much they can lend to any one company, which can make it harder for the market to absorb very large bond sales.

What to watch

The column’s bigger point is that diversification, meaning not putting all your eggs in one basket, is getting tougher as AI-related firms take up a larger slice of major indexes and credit markets. Watch whether index providers change their rules, and whether fund managers adjust limits as more large AI-linked listings and bond sales arrive. Pimco also argued that AI spending is now big enough to influence the wider economy, including total global investment over the next few years.

Source: Financial Times