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How to Diversify Away From AI Concentration

BY | ETF Database
8:21 am ET 09/29/26 | 5 VIEWS
Investors looking to diversify their U.S. growth portfolios away from artificial intelligence may want to check how concentrated that exposure has become, according to new research from T. Rowe Price.Key Takeaways: AI exposure is heaviest in U.S. large-cap growth, with emerging markets also leaning on AI hardware. U.S. small-caps and developed international value stocks carry far less overlap with the AI theme. Over the past year, the MSCI EAFE Value Index returned about 29% and the S&P 600 roughly 27%. Nearly 60% of the Russell 1000 Growth Index is tied to AI infrastructure and hyperscale computing companies. T. Rowe Price capital markets strategist Timothy Murray reached that figure using a ChatGPT and FactSet review of index holdings. Hyperscaler free cash flow is declining, and companies are funding more AI spending with debt. Murray pointed investors toward U.S. small-caps and international developed value stocks, two areas with far less AI exposure. Even in U.S. large-cap value, hyperscalers make up 12% of the Russell 1000 Value Index, and AI infrastructure adds 7%. Together, that leaves nearly a fifth of the index tied to AI, according to Murray’s analysis. Small-caps look different. The S&P 600 Small Cap Index carries no hyperscaler exposure and just 5% AI infrastructure exposure, T. Rowe Price found. The T. Rowe Price Small-Mid Cap ETF (TMSL B+), an actively managed fund with $3 billion in net assets and a 0.55% expense ratio, targets that segment of the market, according to the fund’s factsheet. See more: Active ETFs Hit Record $2.72 Trillion on Inflow StreakWhere Investors Can Diversify InternationallyOutside the U.S., the AI story flips. The MSCI EAFE Value Index has almost no direct AI infrastructure exposure, according to T. Rowe Price. By contrast, the MSCI Emerging Markets Index carries 36% AI infrastructure exposure through memory chips, foundries and hardware, T. Rowe Price found. That index also holds stakes in Chinese hyperscalers Alibaba Group Holding (BABA), Tencent Holdings and Baidu, Inc. (BIDU). For the year ended August 24, 2026, the MSCI EAFE Value Index returned about 29%. The S&P 600 returned roughly 27% over the same stretch, according to T. Rowe Price. EAFE Value now trades near 12.7 times forward earnings, cheaper than the S&P 600’s roughly 15 times. Yet the S&P 600 carries a steeper growth forecast, with projected earnings growth of about 18.5% over the next year, compared with 9.2% for EAFE Value. The T. Rowe Price Active Core International Equity ETF (TACN) is an actively managed fund that invests outside the U.S. TACN holds 400 to 500 large- and midcap stocks. Its benchmark is the MSCI EAFE Index Net, according to the fund’s factsheet. Many of the biggest AI beneficiaries have outgrown the small-cap universe, which helps explain the S&P 600’s light AI exposure. Their market values climbed until they no longer belonged in the S&P 600, T. Rowe Price noted. For more news, information, and analysis, visit our Active ETF Content Hub.

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