Public pension funds are gaining from AI stocks and taking on more risk

In short: US public pension funds have made large paper gains from AI-linked stocks, but more of their money is now tied to a small group of companies.

What's going on

Public pension funds, the retirement funds for teachers, police, and other government workers, have benefited from the recent rise in AI-related stocks. A Wall Street Journal report found that 13 large funds had about $138 billion in paper gains from 15 AI-linked stocks since late 2022. Paper gains means the value went up on paper, but the funds only lock in profits if they sell.

Those 15 stocks made up 27% of the funds’ US stock holdings by June 2026. That is up from 12% around the time ChatGPT launched. The same set of stocks produced about 57% of the funds’ US stock gains, which shows how much of the recent improvement came from a narrow slice of the market.

Some of this shift was not a deliberate choice to bet on AI. It happened as a few large technology companies grew to dominate stock indexes, like a team in a league that keeps getting bigger and ends up on everyone’s roster. The Equable Institute estimated that by spring 2026, about 8% to 10% of public pension assets, roughly $500 billion to $600 billion, was invested in a basket of AI-related public companies, not counting some private investments.

What to watch

The main worry is concentration risk. If AI company stock prices drop sharply, many pension funds could be hit at the same time. Prices could fall if expected business growth does not show up, a competing technology takes attention away, or interest rates change.

Officials also face a tension in their roles. Public leaders may question AI’s impact on jobs, energy use, land, and water, while the funds they oversee own shares in companies benefiting from the AI boom. Over time, AI could also affect government payrolls, which can influence how much money flows into these pension systems.

Source: NYTimes