Artificial Intelligence: The Defining Investment Theme of Our Era

Artificial intelligence has rapidly evolved from a futuristic concept to a transformative force embedded in nearly every aspect of modern life. From voice assistants to financial forecasting to healthcare diagnostics, AI now fuels the operations and growth of many of the world’s most valuable companies.

This seismic shift is reshaping global investment trends, with funds in the artificial intelligence and Big Data themes seeing explosive growth and investor interest. At the end of the first-quarter this year, global assets in artificial intelligence and Big Data funds totaled more than $30 billion.

Data as of March 31, 2025. Source: Morningstar Direct.

In the Investing in Artificial Intelligence Handbook, we unpack what’s driving the growth of this theme and how investors can engage with it.

Flows into AI and Big Data funds saw an influx in late 2022 due to investor enthusiasm around the public debut of ChatGPT 3.5, which demonstrated AI’s transformative potential to hundreds of millions of users worldwide. And record inflows in early 2025 were fueled in part by a surge of interest from Chinese investors, sparked by the success of domestic AI leader DeepSeek.

These breakthroughs have contributed to US-domiciled AI and Big Data fund assets growing fourteenfold in just two years—albeit from a low base—to reach a record $5.5 billion by May 2025.

Still, the US accounts for just 15% of global AI and Big Data fund assets, trailing Europe, where AI fund assets have grown fivefold over the past five years to reach $22.7 billion.

As AI continues to weave itself into the fabric of our lives, the question “What qualifies as an AI stock?” becomes increasingly nuanced.

While mega-cap tech companies like Microsoft MSFT, Alphabet GOOG, and Nvidia NVDA may come to mind immediately, the AI ecosystem is broad and includes companies that provide supporting infrastructure or apply AI in transformative ways.

For instance, firms like Vertiv VRT, which supplies power and cooling infrastructure essential for AI data centers, play a crucial role. Even large retailers like Walmart WMT and Tesco TSCO, which leverage vast datasets to optimize operations using AI tools, are part of the broader AI theme. This diversity complicates the task of building thematic portfolios but also presents opportunities for differentiated exposure.

To help identify meaningful exposure to AI, Morningstar employs a consensus holdings-based approach. By analyzing all non-China-domiciled funds tagged as AI and Big Data funds, we identify the most commonly held stocks across these portfolios. This method provides a transparent, data-driven view of the core holdings shaping the AI investment narrative.

Our analysis reveals a clear trend: The Magnificent Seven dominate AI and Big Data fund holdings.

Nvidia, in particular, appears in nearly 90% of AI and Big Data fund portfolios, thanks to its market leadership in AI chips. All the other names in the Magnificent Seven (Microsoft, Amazon.com AMZN, Google, Meta META, Apple AAPL, and Tesla TSLA) also contribute uniquely to the commercialization of AI—from cloud computing to data monetization and advanced robotics.

These companies not only provide the hardware and software backbone for AI development but also benefit from massive data ecosystems and global scale. Their central role in AI has made them cornerstones of performance for AI-focused strategies.

While the Magnificent Seven companies are logical inclusions in any AI-tracking portfolio, their dominance presents a dilemma for fund managers: Including them heavily leads to significant overlap with mainstream equity indexes like the S&P 500 and Nasdaq-100. This dilutes the uniqueness of AI-themed funds and challenges the justification for higher fees often associated with active management.

Conversely, excluding these giants altogether introduces performance risk, as it could mean missing out on some of AI’s biggest beneficiaries.

Most fund strategies seek a middle path: maintaining a core allocation to the Magnificent Seven while using the remaining portfolio to highlight more specialized or lesser-known AI players.

With that in mind, here are the stocks outside of the Magnificent Seven that feature most often in AI and Big Data-tracking funds.

Despite Europe being the largest market for AI and Big Data fund assets, the United States continues to dominate in terms of stock representation. Nearly all of the most frequently held stocks in global AI funds are US-listed and -domiciled. Though there are exceptions, like Dutch semiconductor equipment giant ASML ASML, they are few and far between.

This geographic skew reflects the US’ continued leadership in tech innovation and its deep capital markets. It also highlights the structural challenge for investors seeking geographic diversification within the AI theme. At present, no comprehensive fund exists that enables full diversification away from US-centric AI exposure.

The Morningstar Global Artificial Intelligence & Big Data Consensus Index—built from the most commonly held stocks in AI-focused funds—has outperformed the Morningstar Global Target Market Exposure Index by 35% since the release of ChatGPT 3.5 in November 2022.

However, this impressive outperformance has come with higher volatility and deeper drawdowns, illustrating the high-risk, high-reward nature of investing in emerging technologies.

Investors should be mindful that while the AI theme offers tremendous growth potential, it also carries elevated risks. Concentration in a few dominant names, exposure to rapidly evolving technologies, and valuation concerns are all factors to consider when allocating to this space.

This article originally appeared on Morningstar.com on June 30, 2025.