Strategist Gabriela Santos of JPMorgan Asset Management has issued a warning that concentration risk tied to the "artificial intelligence factor" is now extending beyond equities into fixed income, even as the so-called "super cycle" narrative remains intact. The urgency for investor prudence, she argues, is escalating sharply.
In a Tuesday interview, Santos remarked, "You can be highly bullish on everything AI-related, but you still need to think very carefully about portfolio construction." As Chief Market Strategist for the Americas at JPMorgan Asset Management, Santos pointed to July's tech stock selloff as a stark reminder of the dangers posed by overly crowded positioning. During that month, the Philadelphia Semiconductor Index plunged 21%, marking its steepest drop since 2008, while South Korea's Kospi benchmark tumbled 22%, a index where chipmakers Samsung Electronics and SK Hynix account for roughly half of the weighting.
Santos noted that this violent volatility underscored the critical importance of managing position sizes, controlling leverage, and diversifying beyond the AI sector. "This is where things get complicated. Because you can no longer just consider traditional factors, sectors, or regions, or even asset classes, since AI's reach is now everywhere," she added. According to her, U.S. Treasuries, gold, and core real estate are among the few areas capable of offering distinct sources of return.
Santos highlighted that the AI buildout, which she estimates involves capital expenditures of $5.5 trillion across public and private markets, is "quite unique" because it is already reflected in corporate profits. Nevertheless, she cautioned that growth rates will eventually decelerate, and even if AI remains the dominant investment theme, diversifying now is a prudent move. Strategists at Goldman Sachs estimated in June that AI data center spending could surpass $900 billion by 2026, with forecasts reaching as high as $1.4 trillion for 2027, underscoring the sheer scale of the cycle Santos describes.
Her concentration warnings also extend to bond portfolios. Santos indicated that investment-grade issuance has set record highs for a fourth consecutive month, with companies including Alphabet even tapping the market for 100-year bonds. Furthermore, multi-asset investors are now exposed to AI expansion risks on both the equity and fixed income sides simultaneously. She advised that debt issued by hyperscalers should be analyzed individually rather than as a homogeneous group, referencing the growing complexity of special purpose vehicles (SPVs) backed by data center leases as collateral.
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