Reassessing market concentration in the AI era

Key takeaways

• AI-driven growth has helped amplify market concentration, with a small group of mega-cap companies exerting an outsized influence on broad-market performance.
• Understanding index structure—especially how sector composition and company weights evolve—may be increasingly important in today’s technology-led market environment.
• QQQ provides exposure to many companies central to AI and digital transformation, although investors may want to consider the portfolio implications of concentrated market leadership.

A handful of mega-cap companies have continued to dominate US equity markets, and their influence has grown even more visible in the past year as artificial intelligence (AI) adoption accelerates.

This concentration has brought renewed attention to how investors understand index structure, sector composition, and the potential for large companies to shape broad-market performance. While concentration is not new, the forces driving it today—AI infrastructure investment, cloud computing expansion, and digital transformation—give the topic fresh relevance.

Understanding today’s concentration environment

Market concentration often rises during periods when a small number of companies generate outsized earnings growth or become central to emerging technologies.

For example, the top 10 largest US stocks by market capitalization represent about 35% of the overall market, compared with 18% a decade ago.¹

Over the past year, advancements in generative AI, including chatbots like ChatGPT, and large-scale data processing have intensified this trend. Companies positioned at the core of AI hardware, cloud services, and software ecosystems have seen elevated demand for their capabilities, contributing to rising stock prices, larger index weights, and heightened investor focus.

Several structural factors may also be contributing:

• AI catalysts: Demand for computing power, semiconductors, and cloud infrastructure has expanded quickly, and companies central to these areas may disproportionately capture that growth.
• Macro and policy uncertainty: As interest rates and inflation fluctuate, investors sometimes favor firms with strong balance sheets and diversified revenue streams. These attributes tend to be common among the largest index constituents.
• Investor behavior and overlap: Enhanced visibility of AI-related themes, combined with flows into index-based strategies, may increase overlap among broad-market allocations, further reinforcing concentration.

While concentration can raise questions about diversification and volatility, it may also reflect long-term structural shifts toward technology-enabled business models.

How QQQ relates to the conversation

Invesco QQQ ETF tracks the Nasdaq-100® Index, which includes 100 of the largest non-financial companies listed on the Nasdaq Stock Market. These companies span sectors such as Information Technology, Communication Services, and Consumer Discretionary, areas that often feature prominently in the ongoing adoption of digital and AI-enabled technologies.²

Because of its methodology, the Nasdaq-100 has often exhibited higher exposure to firms developing or enabling innovation. Examples within the index have included companies contributing to semiconductor design, cloud architecture, entertainment technologies, e-commerce platforms, and cybersecurity solutions. These examples are illustrative and not exhaustive, and the index’s composition will evolve over time.

For investors, this means that QQQ may offer access to companies at the forefront of technological change, while also carrying the structural reality that a relatively small number of large firms may influence index results.

Indeed, the “Magnificent Seven” stocks—Apple, Microsoft, Amazon.com, Alphabet, Tesla, Nvidia, and Meta—are currently held in QQQ.³ That’s one reason why QQQ has generated respectable returns over the past five years, delivering an annualized return of 22.08% over the period, outperforming the 13.59% annualized return of the Russell 3000® Index, a benchmark considered representative of the U.S. stock market.⁴

Standardized performance - Performance quoted is past performance and cannot guarantee of comparable future results; current performance may be higher or lower. Visit invesco.com/performance for the most recent month-end performance. Investment returns and principal value will vary; you may have a gain or loss when you sell shares. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower. Invesco QQQ’s total expense ratio is 0.18%. Index performance does not represent fund performance. Please keep in mind that high, double-digit and/or triple-digit returns are highly unusual and cannot be sustained.

Risk and considerations in a concentrated market

Periods of elevated concentration may cause investors and financial professionals to reassess if portfolios still line up with long-term objectives.

Relevant considerations include:

• Portfolio balance: In a growth-oriented portfolio, QQQ might be used to help complement other allocations, such as value, small-cap, international equities, or fixed income. These combinations may help balance concentrated exposure within a broader framework, although diversification does not eliminate the risk of loss.
• Rebalancing discipline: As relative performance shifts, periodic portfolio reviews may help maintain alignment between allocation targets and investor goals.
• Correlation awareness: When several indexes and active strategies exhibit overlapping large-cap technology exposure, correlations may rise, influencing portfolio-level risk characteristics.
• Macro sensitivity: Concentrated large-cap companies may react differently to changes in earnings trends, regulation, or economic conditions than smaller companies.

These considerations do not imply a view on the market’s direction; rather, they help frame concentration as a factor to keep an eye on.

Why concentration may remain a topic of interest

Technology-driven shifts—especially AI adoption—continue to influence corporate investment and sector leadership. Whether markets remain concentrated or eventually broaden, this evolution underscores the importance of understanding how indexes like the Nasdaq-100 are constructed, and their potential impact on investments like Invesco QQQ ETF.