When 10 AI Companies Own 20% of Global Markets, Where Can Investors Hide?
The artificial intelligence boom has made companies in the sector very popular with investors. Even believers, however, are finding it increasingly difficult to hedge their bets and find other investments that would not suffer in a downturn.
Scott Galloway lays out the precarious math of this market concentration:
When you have 10 companies responsible for 40% of the S&P's value, and the S&P makes up 50% of the total world's value, you have 10 companies responsible for 20% of the entire valuation of public equities globally. That is the string that, if it gets pulled, everything, everything goes down.
— Scott Galloway
NYU business professor and podcaster Scott Galloway explains that one way for this boom to bust is a sudden loss of demand. Customers are excited about AI but so far are not seeing much return on their investment (ROI) in the new technology.
If a bunch of big companies all of a sudden come out and say, we're scaling back our investments in Al, because it's not showing the ROI, and NVIDIA throws up and goes down 20 or 30% in one day, you could see an unwinding.
— Scott Galloway
Market crashes often start unexpectedly. In Galloway's scenario, NVIDIA could be the first domino to fall, but there are many other contenders. His essential point is that the colossal bet on AI has made markets fragile and left investors with few places to hide.
To learn more, listen to the Pivot Podcast where Galloway made these comments.
For a deeper dive into Galloway’s financial philosophy, pick up his bestselling book,The Algebra of Wealth: A Simple Formula for Financial Security. It's a must for anyone hoping to get ahead.
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