The stock leaders of yesterday can quickly become the laggards of tomorrow. Be prepared by diversifying across sectors and regions.
The AI trade is no longer a single trade, in our view, but one where the winners and losers have differing return paths.
An active investment approach can help ensure more diversified and resilient portfolios in all markets.
Investors have traditionally leaned on global stocks to unlock value through diversification across regions and sectors. Yet a growing risk is the degree of market concentration in a handful of US big tech and artificial intelligence (AI) giants. While being heavily exposed to these names in recent years has been profitable, we think shifting trends underscore the need for a more active approach where these areas aren’t treated as a single trade.
Each country or region offers unique strengths and exposures. Some are geared to natural resources or manufacturing prowess, some are more heavily exposed to tech, and some to the consumer. Strengths can turn, and dynamics can shift rapidly. Today’s leaders can quickly become tomorrow’s laggards. That’s why an unyielding focus on high-quality, attractively valued firms, regardless of geography, is always essential.
Recent market leadership has been heavily concentrated. The Magnificent 7, Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla, and a few AI-focused firms have dominated returns for much of this year and last. But this concentration carries risk. Once investor expectations are baked into sky-high valuations, even small setbacks in earnings or guidance can trigger sharp pullbacks.
While AI remains a powerful force, the path to profits is far from homogeneous. Success in AI requires more than access to cutting-edge data or platforms. It demands domain-specific applications, regulatory navigation, and scalable business models. Not every AI investment will thrive. Some may struggle in monetisation or face competitive erosion. We’re starting to see clear evidence that stock performance within this space is becoming far more nuanced.
For much of the last few years, the large hyperscalers (companies that provide massive-scale cloud computing services and infrastructure) have tended to trade in a similar fashion, rising and falling together. The AI trade is no longer a single trade now, though. We see this reflected in the average correlation of returns across the five major hyperscalers: Microsoft, Alphabet, Meta, Amazon, and Oracle. The correlation has tended to be strongly positive for much of the last decade, but has recently been closer to zero. (See chart below).
Sources: Invesco and Bloomberg L.P., as of 17 Dec. 2025.
We think this could persist and calls for deep fundamental analysis and differentiation. Investors should distinguish between firms merely experimenting with AI and those embedding it meaningfully into their core value proposition. The superficial reception in index multiples belies significant differences in platform maturity, data moat, and execution capability.
The Invesco Global Equities team follows a disciplined, bottom-up stock picking process that identifies businesses boasting strong balance sheets and trusted leadership, irrespective of sector or region. The team’s aim: Assemble a high-conviction portfolio with low correlation amongst holdings and diversification across countries and sectors.
By avoiding overexposure to any single theme or economic bet, this strategy mitigates the risks of market concentration and allows performance to flourish across a variety of market conditions. And by leaning on granular, company-specific insights, it allows investors to capture the genuine winners across sectors, not just the headline names.
Differing from thematic investing, this approach doesn’t chase emotions or hype. Instead, it identifies businesses that benefit from structural change, whether through AI, supply chain resilience, or evolving consumer habits, without being overly exposed to short-lived momentum rallies.
In today’s environment of heightened concentration risk and a maturing AI landscape, a selective, fundamentals-driven approach is important. Rather than accepting a broad-brush allocation to big tech and AI, investors can benefit from a thoughtfully curated portfolio that captures global opportunity, emphasises quality, and avoids value traps.
Our global equities team are experts in building diversified portfolios designed for long-term success. We invest across sectors and industries, seeking quality companies and capturing equity and income opportunities worldwide.
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