Where AI Exposure Hides in Your Portfolio

Steve Dean is the Chief Investment Officer at Compound. He has 30+ years of experience in markets and investments, and leads our investment team, developing our public and private portfolios. He previously worked in the economic research department of the Federal Reserve.

AI is everywhere now — including your paycheck, your equity comp, your index fund, your private investments, and increasingly your bonds.

You might just think about your AI exposure as related to your job and your company stock. But AI now acts like a factor across your portfolio and things connected to this AI factor tend to rise and fall together. You can see proof in your index fund, bond portfolio, private credit, private funds, and, depending on where you live, even your house. 

No matter how strong your AI convictions, downside protection from the AI factor taking a hit is important. It’s crucial to look at your full balance sheet, so you can see how concentrated you are in AI and take steps to make sure you’re as diversified as you want to be. 

Key Takeaways: 

• Your AI exposure may be bigger than you think. AI acts as a market-wide factor, so    it shows up beyond your job and company stock: in your index fund, bonds, private    credit, real estate and venture funds, and even your home’s value.
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• AI technology might transform the world, but the investment can still disappoint.    The risk lies in the entry price, not whether AI is “real.” If today’s prices assume    exceptionally high growth will continue, even a modest slowdown in that growth from    competition, overextension, or regulation can pull these investments down.
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• Believing in AI and diversifying away from it aren’t in conflict. Take inventory of    your full balance sheet, plan for share unlocks before they happen, look for    investments AI doesn’t touch, and consider downside tools like collars around    concentrated positions if you don’t want to sell.

What Is the "AI Factor"?

People usually think about concentration by industry, geography, sector, or security type. But AI cuts across all of those categories — right now, it dominates job growth, investment spending, and the asset's leading markets. 

When you ask yourself “does X move with AI?” think in rings:

AI companies → suppliers → companies using AI → Businesses that have to transform into AI companies to survive or thrive

You expect exposure from an AI company. But you might not think about “regular businesses” that have started trading stocks in sync with AI. 

Where Does AI Exposure Hide in a Portfolio?

Think of your whole balance sheet, including yourself, as an asset.

1. Your job and pay (human capital): salary, bonus, and stock options or RSUs tied to your employer's equity (private or public)
2. Equity from past employers: locked-up shares or carry from a previous company that's also connected to AI
3. Your private investments: the startup a friend or colleague founded, a VC fund, private equity with heavy AI exposure
4. Your public equity: the index fund carries more AI concentration than its "diversified" label suggests (remember the “rings” above?)
5. Your bonds: hyperscalers (giant cloud and AI infrastructure companies) started funding AI build-out from their own cash and are increasingly borrowing. If you hold fixed income to diversify your equity, there’s more of that AI factor hiding in your portfolio than you might think.
   

Some things to keep in mind about bonds: 

• AllianceBernstein estimates hyperscalers comprised 2.7% of the U.S. investment-    grade corporate bond index in 2025, and 4.8% in 2026. That could reach 8.8% by    2030.
     ◦ But this isn’t a reason to be overly worried — even at 8.8%, ~9 in 10 index dollars          aren't hyperscaler debt. You still have meaningful diversification. 
     ◦ What may be concerning here is that the percentages are rising.

• While the debt of the biggest AI companies may be supported by stronger balance    sheets and interest coverage than the typical public company, if you own both their    stocks and bonds, you might have exposure to the same underlying economic driver    in different parts of your portfolio.

• If you hold the broad bond index → you're well-diversified. Check what you own,   because specific managers or strategies could have more or less of it. 

6. Your private credit: it may carry more tech exposure than the investment-grade market. Technology and software make up a lot of private credit portfolios. Remember the "SaaSpocalypse,” when investors noted how private credit funds turned out to be heavily concentrated in software lending and sold off?  
7. Your private real estate and venture funds: Data centers and power infrastructure are benefiting from AI demand. Same for Venture, where AI continued to attract significant investment.
8. Your home: Bay Area home values in particular could be connected to AI. 

Once you've counted every line item that applies to you, diversification means finding other investments that are less connected to AI.

Why Does It Matter If the Technology Is “Real?”

AI’s changing everything, so you might wonder: Why not invest heavily in it? 

The tools keep getting better, and companies building models have substantial earnings. You might’ve already benefitted from it. 

But two things can be true at once: The transformation can play out, and the investment can still disappoint you.

• In the dot-com boom, tech transformed our lives, but there was a lot of over-investment. An important difference, though: That era’s leading companies weren’t making money; many of today’s leaders are. The risk around investing in AI comes from the entry price — prices and earnings may both be near a peak, and any kind of hiccup will sort winners from losers.
  
  
• Concentration really can build fortunes. The railroad barons didn’t diversify, and for a long time they were household names. The same thing is happening with AI now. But the catch is that at some point, even incredible growth slows.

Why does growth slow? The usual economic forces might play out.

1. Competition. Abnormal profits attract competitors, and they disrupt and or bring down margins. Competition can come from anywhere. For example, the less-expensive Chinese AI models are already driving down prices. 
2. Overextension. Companies flush with cash often over-invest, expand everywhere, and get stuck with excess when conditions change. 
3. Regulation. When companies get big enough, they can get broken up. It’s already happened to railroads and telephone companies.

Investment returns can vary widely, no matter how much value AI creates.

Right now, data centers need a lot of upfront capital, and their tech can get outdated fast. As they finance more with debt at a time where the cost of capital has risen, their future revenue needs to be higher to cover it. 

This matters for stock prices — not because the technology might fail, but because of how prices are set. A company’s share price ultimately reflects what investors think it’ll earn one day, adjusted back to today’s value. If today’s price assumes that the current (unusually high) growth will keep happening, then even a modest slowdown can pull that price down. Even if the tech’s working as promised.

That doesn’t mean the whole market is currently overpriced. Prices might be high right now, but S&P 500 earnings expectations have actually risen even faster. 

Still, the entry price you pay matters, and the risk lies in paying up for specific companies on the assumption that their exceptionally high growth will continue.

How Should I Approach Concentrated AI Exposure?

Wanting more concentration in AI now is a reasonable position. Many AI companies  have delivered great earnings, and AI stocks have is performed well. But sometimes when things are going well, or if you’re close to an exciting industry — like, working inside of it — it’s harder to see the negatives. 

You should know how concentrated you are, and how quickly you need to diversify depending on when opportunities arise. 

So how do you manage concentration risk without abandoning the upside?

1. Diversify across the theme instead of picking individual winners. Picking winners is hard. Owning the broad market acknowledges that some companies will fail and some will do exceptionally well, and you don’t have to guess which. If you want selectivity, that can be a job for active managers who dedicate many resources to compare a company’s price to its likely future earnings.
   
   
2. Some courage of your convictions is important, but be a little humble. If you've been at a company that's done well and is about to go public, that’s great. You can be proud of your good fortune, but don’t let that cloud your vision. Picking “the next winner” isn’t a sure thing, even if you’ve done it already.
   
   
3. Plan your unlock before it happens. When shares unlock, you should have an idea of how fast you want to diversify, and whether you need cash to pay the taxes on exercising. When a company goes public, the share price is now set by public markets — short-term, that price can be based on sentiment, and will certainly be more volatile than the private-era rise.
   
   
4. Look for what's uncorrelated. That means: private real estate (that isn't data centers — they benefit from AI), private credit that isn't AI-software lending, and international stocks. Check whether you need more private equity or venture that's heavily AI-tilted.
   
   
5. Use downside tools if you don't want to sell. If you’re worried about a market top (the highest price you reach before a sustained downward trend), options strategies like collars can narrow the range of outcomes — you just give up some upside for some downside protection.
   

Believing in AI and diversifying away from it aren't in conflict. Even when investments falter, AI can keep progressing. But your personal concentration is important to understand — when shares unlock or a company goes public, your wealth changes overnight. 

That's when having a full picture is really important. 

A lot of the investment advice industry sorts people into a handful of preset profiles for scale reasons, but considering the other parts of your personal and financial life can change the picture.. Compound starts from the client’s full balance sheet so every piece of your portfolio is considered.

The Compound dashboard shows you all of your finances, in one view: https://compoundplanning.com/dashboard

FAQs

What is the “AI factor”?

The AI factor is the tendency for anything connected to AI to rise and fall together It’s not just AI companies themselves — it includes their suppliers, businesses that use AI, and companies that transform themselves to compete. Because it cuts across industries, sectors, and asset types, it can concentrate your portfolio in ways traditional diversification doesn’t address.

If I own a broad index fund, am I already diversified away from AI?

Not entirely. Index funds often carry more AI concentration than you might think, because the largest companies in the index are closely tied to AI, and even many other smaller holdings now move in sync with those companies. Owning the broad market still balances winners and losers, but it’s worth knowing how much of your fund rides on the same driver as your other investments as well as your job or equity comp.

Do my bonds have AI exposure?

They can. Hyperscalers (giant cloud and AI infrastructure companies) are increasingly borrowing to fund AI build-out. If you hold both stocks and bonds, you may have exposure to the same economic driver in two places. Specific managers or strategies may hold more or less than the broad index.

If AI is transforming the economy, why diversify away from it?

Because even when technology succeeds, the investment could disappoint. Stock prices reflect expected future earnings, so if today’s prices assume unusually high growth will continue, even a modest slowdown can pull them down. Competition, overinvestment, and regulation have slowed many major booms, from railroads to the dot-com era.

How can I reduce AI concentration without giving up the upside?

Diversify across the theme instead of betting on individual winners, and plan how quickly you’ll diversify before shares unlock or a company goes public. Look for investments that are less connected to AI, such as non-data-center real estate, private credit outside software lending, and smaller cap and international stocks.