Melbourne, Sep 15 (The Conversation) Just for a moment this week, Larry Ellison, co-founder of US cloud computing company Oracle, became the world\u2019s richest person. The octogenarian tech titan briefly overtook Elon Musk after Oracle\u2019s share price rocketed 43 per cent in a day, adding about USD 100 billion (AUD 150 billion) to his wealth.
\u00a0\u00a0\u00a0\u00a0 The reason? Oracle inked a deal to provide artificial intelligence (AI) giant OpenAI with USD 300 billion (AUD 450 billion) in computing power over five years.
\u00a0\u00a0\u00a0\u00a0 While Ellison\u2019s moment in the spotlight was fleeting, it also illuminated something far more significant: AI has created extraordinary levels of concentration in global financial markets.
\u00a0\u00a0\u00a0\u00a0 This raises an uncomfortable question not only for seasoned investors, but also for everyday Australians who hold shares in AI companies via their superannuation. Just how exposed are even our supposedly \u201csafe\u201d, \u201cdiversified\u201d investments to the AI boom?<\/p>\n
\u00a0\u00a0\u00a0\u00a0 The man who built the internet\u2019s memory
\u00a0\u00a0\u00a0\u00a0 As billionaires go, Ellison isn\u2019t as much of a household name as Tesla and SpaceX\u2019s Musk or Amazon\u2019s Jeff Bezos. But he\u2019s been building wealth from enterprise technology for nearly five decades.
\u00a0\u00a0\u00a0\u00a0 Ellison co-founded Oracle in 1977, transforming it into one of the world\u2019s largest database software companies. For decades, Oracle provided the unglamorous but essential plumbing that kept many corporate systems running.
\u00a0\u00a0\u00a0\u00a0 The AI revolution changed everything. Oracle\u2019s cloud computing infrastructure, which helps companies store and process vast amounts of data, became critical infrastructure for the AI boom.
\u00a0\u00a0\u00a0\u00a0 Every time a company wants to train large language models or run machine learning algorithms, they needs huge amounts of computing power and data storage. That\u2019s precisely where Oracle excels.
\u00a0\u00a0\u00a0\u00a0 When Oracle reported stronger-than-expected quarterly earnings this week, driven largely by soaring AI demand, its share price spiked.
\u00a0\u00a0\u00a0\u00a0 That response wasn\u2019t just about Oracle\u2019s business fundamentals. It was about the entire AI ecosystem that has been reshaping global markets since ChatGPT\u2019s public debut in late 2022.<\/p>\n
\u00a0\u00a0\u00a0\u00a0 The great AI concentration
\u00a0\u00a0\u00a0\u00a0 Oracle\u2019s story is part of a much larger phenomenon reshaping global markets. The so-called \u201cMagnificent Seven\u201d tech stocks \u2013 Apple, Microsoft, Alphabet, Amazon, Meta, Tesla and Nvidia \u2013 now control an unprecedented share of major stock indices.
\u00a0\u00a0\u00a0\u00a0 Year-to-date in 2025, these seven companies have come to represent approximately 39 per cent of the US S&P500\u2019s total value. For the tech-heavy NASDAQ100, the figure is a whopping 74 per cent.
\u00a0\u00a0\u00a0\u00a0 This means if you invest in an exchange-traded fund that tracks the S&P500 index, often considered the gold standard of diversified investing, you\u2019re making an increasingly concentrated bet on AI, whether you realise it or not.
\u00a0\u00a0\u00a0\u00a0
\u00a0\u00a0\u00a0\u00a0 Are we in an AI \u2018bubble\u2019?
\u00a0\u00a0\u00a0\u00a0 This level of concentration has not been seen since the late 1990s. Back then, investors were swept up in \u201cdot-com mania\u201d, driving technology stock prices to unsustainable levels.
\u00a0\u00a0\u00a0\u00a0 When reality finally hit in March 2000, the tech-heavy Nasdaq crashed 77per cent over two years, wiping out trillions in wealth.
\u00a0\u00a0\u00a0\u00a0 Today\u2019s AI concentration raises some similar red flags. Nvidia, which controls an estimated 90 per cent of the AI chip market, currently trades at more than 30 times expected earnings. This is expensive for any stock, let alone one carrying the hopes of an entire technological revolution.
\u00a0\u00a0\u00a0\u00a0 Yet, unlike the dot-com era, today\u2019s AI leaders are profitable companies with real revenue streams. Microsoft, Apple and Google aren\u2019t cash-burning startups. They are established giants, using AI to enhance existing businesses while generating substantial profits.
\u00a0\u00a0\u00a0\u00a0 This makes the current situation more complicated than a simple \u201cbubble\u201d comparison. The academic literature on market bubbles suggests that genuine technological innovation often coincides with speculative excess.
\u00a0\u00a0\u00a0\u00a0 The question isn\u2019t whether AI is transformative; it clearly is. Rather, the question is whether current valuations reflect realistic expectations about future profitability.<\/p>\n
\u00a0\u00a0\u00a0\u00a0 Hidden exposure for many Australians
\u00a0\u00a0\u00a0\u00a0 For Australians, the AI concentration problem hits remarkably close to home through our superannuation system.
\u00a0\u00a0\u00a0\u00a0 Many balanced super fund options include substantial allocations to international shares, typically 20\u201330 per cent of their portfolios.
\u00a0\u00a0\u00a0\u00a0 When your super fund buys international shares, it\u2019s often getting heavy exposure to those same AI giants dominating US markets.
\u00a0\u00a0\u00a0\u00a0 The concentration risk extends beyond direct investments in tech companies. Australian mining companies, such as BHP and Fortescue, have become indirect AI players because their copper, lithium and rare earth minerals are essential for AI infrastructure.
\u00a0\u00a0\u00a0\u00a0 Even diversifying away from technology doesn\u2019t fully escape AI-related risks. Research on portfolio concentration shows that when major indices become dominated by a few large stocks, the benefits of diversification diminish significantly.
\u00a0\u00a0\u00a0\u00a0 If AI stocks experience a significant correction or crash, it could disproportionately impact Australians\u2019 retirement nest eggs.<\/p>\n
\u00a0\u00a0\u00a0\u00a0 A reality check
\u00a0\u00a0\u00a0\u00a0 This situation represents what\u2019s called \u201csystemic concentration risk\u201d. This is a specific form of systemic risk where supposedly diversified investments become correlated through common underlying factors or exposures.
\u00a0\u00a0\u00a0\u00a0 It\u2019s reminiscent of the 2008 financial crisis, when seemingly separate housing markets across different regions all collapsed simultaneously. That was because they were all exposed to subprime mortgages with a high risk of default.
\u00a0\u00a0\u00a0\u00a0 This does not mean anyone should panic. But regulators, super fund trustees and individual investors should all be aware of these risks. Diversification only works if returns come from a broad range of companies and industries. (The Conversation) SKS<\/p>\n","protected":false},"excerpt":{"rendered":"Melbourne, Sep 15 (The Conversation) Just for a moment this week, Larry Ellison, co-founder of US cloud computing…\n","protected":false},"author":2,"featured_media":112514,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[49,48,285,61],"class_list":{"0":"post-145049","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-computing","8":"tag-ca","9":"tag-canada","10":"tag-computing","11":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/145049","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=145049"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/145049\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/112514"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=145049"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=145049"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=145049"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}