Here's a funny thing about the artificial intelligence revolution: it's making the stock market go up, which is great for people who own stocks. But it might also be quietly building wealth for a select few while leaving everyone else behind. At least, that's the concern from someone who knows a thing or two about where money flows.
Larry Fink, the CEO of BlackRock (BLK), recently voiced this worry. He thinks the benefits of AI will flow disproportionately to those who have already invested. And in the world of exchange-traded funds, this trend is becoming hard to miss.
The Passive Investment Conundrum
Since ChatGPT burst onto the scene, the AI stock rally has been powered by a handful of mega-cap companies. ETFs that track the S&P 500, especially the ones weighted by market capitalization, have been pouring money into these same stocks. It's a bit of a feedback loop: as AI leaders gain value, they get a bigger slice of the index pie, which attracts more ETF money, which pushes their value even higher. Meanwhile, smaller AI players are left eating dust.
Take the SPDR S&P 500 ETF Trust (SPY). It automatically allocates more capital to companies as their market value rises. So, the winners keep winning, at least on paper. This creates a cycle where the rich—in this case, the biggest tech stocks—get richer within your portfolio.
Fink's Advice: Stay Invested, But Think Harder
Despite this concentration risk, Fink's message isn't to run for the hills. He encourages investors to stay the course, pointing to the long-term compounding magic of equities. But for ETF investors trying to ride the AI wave, that means you need to be a bit more strategic about how you hop on the surfboard.
Broad market funds like SPY or the Invesco QQQ Trust (QQQ) give you exposure to the usual suspects driving AI—think semiconductors and cloud computing. But investing solely in these means you're putting a lot of eggs in a very small, very expensive basket of tech giants.
This is where diversification strategies come into play. Equal-weighted funds, like the Invesco S&P 500 Equal Weight ETF (RSP), treat every company in the index the same, giving smaller players a fighting chance in your portfolio. Or you could go sector-specific with something like the VanEck Semiconductor ETF (SMH), which lets you bet on the hardware backbone of AI without necessarily tying your fate to the software platforms.
Broadening the AI Party
A new breed of thematic and actively managed ETFs is trying to solve this problem. They're not just focused on the companies creating AI, but on the businesses across various industries that are using AI to get better. This is crucial, according to Fink, because while tech creates enormous value, that value tends to pool in a few places. Spreading exposure could help spread the wealth.
The Balancing Act
The core issue here is inequality, but the immediate risk for investors is concentration. As more money floods into a handful of AI titans, market leadership gets less diverse. That makes everyone more vulnerable if sentiment suddenly shifts.
For now, the guidance is to stay invested. But in an AI-driven market, where you stay invested might be just as important as the decision to stay invested. The next chapter of the AI trade will be written by whether ETFs continue to concentrate wealth or start spreading it around more evenly.
