Why AI-related companies are driving equity markets – and what advisers should consider

Artificial intelligence (AI) has moved rapidly from a niche technology theme to a material driver of equity market performance. In recent years, companies at the forefront of AI development and adoption have delivered outsized returns, with US technology names dominating index performance. US technology firm NVIDIA, for example, became the world’s first US$5 trillion company towards the end of last year.

For advisers, this raises important questions: what is driving this performance, how durable is the trend, and how should AI exposure be considered within diversified client portfolios?

AI-related companies have led equity markets for several interconnected reasons:

Innovation-led growth: AI is increasingly embedded across sectors including healthcare, financial services, transport and retail. Companies developing core AI infrastructure or applying it at scale are often driving productivity gains and new revenue streams, which has supported earnings growth and investor demand.

Productivity and margin potential: Expectations that AI can improve operational efficiency, automate processes and enhance decision-making have underpinned optimism around long-term profitability. Markets have been quick to price in these potential gains, particularly for businesses with clear competitive advantages.

Benchmark concentration effects: Major global equity indices, such as the S&P 500 and MSCI World, are heavily weighted towards large-cap US technology companies that are central to AI investment. As a result, strong performance from a relatively small group of stocks has translated into broad index-level outperformance.

Strong investor sentiment: AI has captured market attention as a transformative technology, attracting significant capital flows. This has reinforced momentum, particularly in companies perceived as long-term winners.

Advisers should frame AI as a long-term growth driver rather than a short-term trade, and manage client expectations around potential drawdowns.

Structural demand for smarter, data-driven solutions is continuing to grow, and AI adoption is spreading globally across industries. Ongoing investment by large technology firms also provides a strong foundation for continued innovation.

But there are important counterpoints. Valuations in parts of the AI ecosystem are elevated, and market expectations already reflect significant future growth. Any disappointment in earnings delivery, regulatory developments or slower-than-expected adoption could lead to volatility.

For advisers, this highlights the importance of framing AI as a long-term growth driver rather than a short-term trade, and of managing client expectations around potential drawdowns.

Equity markets typically perform best when economic growth is strong, supported by rising corporate revenues and profits. While AI has the potential to enhance productivity over time, most economists do not expect it to materially lift near-term GDP growth across developed economies.

This creates a risk that market enthusiasm runs ahead of economic reality, particularly if AI-driven efficiency gains take longer to translate into broader growth. For portfolios that have benefited from the strong performance of US technology stocks, advisers may wish to assess whether client exposures have become unintentionally concentrated.

From a portfolio construction perspective, this reinforces the case for diversification across regions, sectors and investment styles, rather than relying too heavily on a single theme.

Including exposure to AI-driven companies does not necessarily require explicit thematic allocations. In practice, many clients will already have meaningful AI exposure through core global equity holdings, given index composition.

For advisers, the key considerations are often about balance and implementation:

• Ensuring AI exposure aligns with client risk profiles and time horizons
• Avoiding excessive reliance on a narrow group of stocks
• Positioning AI as part of a broader growth narrative rather than a standalone solution

AI also spans multiple sectors, creating opportunities beyond traditional technology stocks, from healthcare and industrial automation to financial services and energy efficiency.

AI-related companies have been a major contributor to recent equity market performance, driven by innovation, strong sentiment and index concentration. While the long-term potential of AI remains compelling, advisers must be mindful of the risks associated with valuation, volatility and economic uncertainty.

As with any structural theme, the focus should remain on robust portfolio construction, disciplined diversification and clear client communication, rather than chasing performance. AI may continue to shape markets for years to come, but the fundamentals of good investing remain unchanged.