Back in August 2024, you might have read our rundown of two key lessons the US’s “Magnificent Seven” can teach you about diversification, in which we looked at the dominance of tech firms in the S&P 500.
These seven companies – including huge names like Apple, Microsoft, and Amazon – are positioned as AI leaders, and their dominance in global markets is a testament to the rise of this rapidly advancing technology. However, their high market share could pose a risk and might even be causing an imbalance in your investment portfolio.
This is particularly concerning in light of a recent Bank of England (BoE) warning that valuations for tech companies focused on AI “appear stretched”, leading to an increased risk of a “sharp market correction”. Or put another way: the AI bubble could be about to burst.
Keep reading to find out what that would mean, if anything, for your investments, and how Globe IFA’s expert advice could help.
AI and tech stocks are performing well, but if valuations are stretched, a slight knock could burst the bubble
As we wrote back in 2024, the Magnificent Seven tech firms make up around 24% of the S&P 500, with shares valued at around $10.3 trillion.
As leaders in technology, they have a large stake in the growth of AI. ChatGPT launched in 2022 and is arguably the most widely known AI application. It’s a chatbot powered by large language models that generates responses to prompts and has been widely adopted by individuals and businesses.
This explains why, according to the Guardian, ChatGPT’s parent company OpenAI has increased in value so significantly, from $157 billion in October 2024 to around $500 billion just 12 months later.
Stock market prices reflect investor confidence and – if the BoE’s assessment is correct and current valuations are stretched – the slightest knock in confidence could have significant consequences.
MoneyWeek recently confirmed that the week to 7 November 2025 was the worst for AI stocks since April. The AI infrastructure company CoreWeave, which has close links to the Magnificent Seven member Nvidia, fell 16% on 11 November. Overly optimistic market sentiment can be dashed quickly – that’s when a bubble bursts.
Interestingly, it’s only when the “pop” occurs that we can be sure there was a bubble in the first place.
Markets rise and fall daily, and even significant events tend not to upset their general upward trend
If AI is a bubble, and the bubble bursts, you might worry about what that means for stock markets and for your investments.
The first important thing to remember is that stock market volatility is expected and is built into your long-term investment plans. Prices rise and fall daily, and major global events will always affect stock market valuations.
This chart from Humans Under Management (their “Wall of Worry”) highlights negative events of the last three decades and their impact on the MSCI World index.
Source: Humans Under Management
As you can see, despite rises and falls around significant global events, including the bursting of the dotcom bubble, the 2008 financial crisis, and the Covid pandemic, the market’s long-term trend is upward.
The best advice – as always – is to stay patient, calm, and focused on your long-term goals.
The rise of AI and the performance of tech stocks only highlight the importance of diversification
One of the reasons you can afford to stay calm and patient is that your investment portfolio is diversified to spread risk. This means your invested wealth is split between asset classes, sectors, and regions so that you aren’t overexposed to a single market sector.
Holding too much stock in AI-related firms could prove high-risk if an AI bubble is about to burst. Diversification means that a fall in this area would hopefully be offset by a rise elsewhere.
But when values rise significantly, as they have with AI and tech firms, you might find yourself overexposed unwittingly. And that’s where asset reallocation comes in. (You can read more about the main reasons to check in with your investment portfolio in our latest blog.)
Rebalancing your asset allocation can ensure your investments aren’t too heavily weighted in one sector or region, and that your asset mix still aligns with your risk profile.
At Globe IFA, we keep a close watch on markets and your investments, and will contact you if your portfolio needs revisiting.
Get in touch
Globe IFA’s expert team have decades of experience in global markets, but if you have any concerns, please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how our financial advisors can help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
