By Sam Bourgi
If you've been buying S&P 500 index funds because you heard they’re “safe” and “diversified,” there’s something important you’re missing out on: your index has become way more concentrated in one trend – artificial intelligence – and that’s changing its risk profile.
You don't need to be a finance expert to understand what's happening. In fact, if you’re someone who simply bought an S&P 500 index fund and trusted it without digging into the details, this is exactly the message you need to hear right now.
Understanding the “Safe” Story That’s No Longer Complete
Millions of people buy S&P 500 index funds every month because they’ve heard it’s diversified across 500 companies, it’s the safest way to invest, you don’t need to know anything about stocks, and every financial advisor recommends it. All of those things are still true. But they’re only telling half the story in December 2025.
InvestorsObserver analyzed this concentration and compared it directly to the dot-com bubble. The takeaways are worth looking at: in 2000 at the dot-com peak, only six internet companies made up 15% of the S&P 500. Today, six AI companies make up over 20%. You’re now more concentrated in a single trend than investors were in 2000, even though you think you’re buying a diversified index.
What happened to those 2000 investors? InvestorsObserver tracked the recovery. Microsoft lost 58% of its value and took 17 years to get back to its peak. Cisco lost 82% and never recovered. Lucent lost 97% and was restructured. Only two of the ten largest dot-com companies ever returned to their peak prices. The message is very clear: even when you think you’re diversified, concentrated indices aren’t safe when one sector dominates.
The Main Concern: These Companies Are Spending Money Like There’s No Tomorrow
Big Tech is spending money at a scale that’s hard to comprehend. In Q3 2025 alone, major tech companies spent $113.4 billion on AI infrastructure – a 75% increase compared to the same quarter last year.
These companies are spending almost all the money they earn. Bank of America data shows that 94% of their profits are now going to AI spending, up from 76% just last year.
This spending is being funded partly through massive borrowing. Just in September and October, Big Tech borrowed $75 billion specifically for AI data centers – more than double their normal annual borrowing.
To put this spending in perspective, imagine if you were making $100 per month but spending $94 of it on a new business idea that hasn’t made any money yet. You’d be worried about whether you were making a smart decision. You’d wonder what happens if your bet doesn’t pay off. These companies are in exactly that situation, except the numbers are in the trillions and billions.
Recent News That Should Make You Stop and Think
Several important pieces of news broke recently that reveal the fragility of the AI boom that now dominates your S&P 500 index. Microsoft, which is supposed to be the gold standard at selling technology products to businesses, lowered its sales targets for new AI products because businesses aren't buying them as quickly as expected.
This is genuinely huge. If Microsoft – with 400 million business users, a 30-year track record of enterprise sales, and integration of AI directly into its core products – is struggling to sell AI solutions, that tells you something important about enterprise adoption. It suggests that companies want to see actual proof that AI will save them money or make them more productive before they commit to large spending. Nobody has that proof yet.
At the same time, the Bank of England issued a formal warning that AI companies are so interconnected and spending so much borrowed money that if their bets don’t pay off, it could destabilize global financial markets.
Also, Michael Burry, the investor who famously predicted the 2008 financial crisis, is publicly warning that the current bubble could be worse than the dot-com crash of 2000.
What You Actually Need to Understand
What all of this means for your S&P 500 index fund is straightforward: you own a slice of all this risk, and your index’s performance now depends heavily on whether these six companies’ AI bets work out.
If they succeed and AI becomes hugely profitable over the next few years, your index fund will likely perform well. If they don’t, and this turns out to be another bubble like 2000, your index fund could suffer significant losses.
Simple Actions You Can Take Without Becoming a Finance Expert
If you’ve been buying S&P 500 index funds every month and you’re concerned about the AI concentration, one sensible approach is to reduce your risk by splitting your contributions. You might put 50% into S&P 500 index funds so you still get the diversification benefit but have less exposure to the AI bet.
You could put 30% into broader market funds that include international stocks and smaller companies, which are less concentrated in AI. And you might put 20% into bonds or money-market funds, which are safer and pay a little interest. This way, you’re not betting everything on whether the AI boom works out as planned.
Alternatively, if you already own S&P 500 index funds and don’t want to restructure your entire portfolio, you could simply reduce the amount you're adding each month. If you were planning to invest $1,000 this month, you might put only $500 into S&P 500, $300 into a broader fund that includes healthcare, utilities, and other less-concentrated sectors, and $200 into international stocks or bonds. This approach, known as dollar-cost averaging, means you’re not betting everything at the top of what could be an AI bubble.
If you’re comfortable with the risk and want to keep buying S&P 500 index funds exactly as before, that's also a reasonable choice. But if you go that route, at least know what you’re actually buying.
You’re now heavily exposed to AI technology. If AI stocks fall 30%, your index fund will probably fall somewhere between 10% and 15%. You might not see gains for years if the bubble deflates like it did in 2000.
And you should stop assuming your index fund is “safe” in the way you probably thought it was when you first bought it. It’s still safer than picking individual stocks, but it’s not safe in the way a truly diversified index should be.
Why Financial Advice Has Become Incomplete
Financial advisors have long loved to tell people to “just buy an S&P 500 index fund and don't think about it.” That advice was pretty good when the index was truly diversified across many sectors and no single theme dominated it.
But right now, in December 2025, the index is heavily concentrated in one hot trend: artificial intelligence. Ignoring that fact doesn’t make it go away. It doesn’t reduce your risk. It just means you’re taking the risk without being aware of it, which is arguably worse than taking it consciously.
You don’t need to become a finance expert. You don’t need to trade stocks every day or read financial news obsessively. But you do need to know what you actually own and what risks come with it.
An S&P 500 index fund is still a reasonable choice for long-term investors, but it’s not a “set it and forget it” investment right now. Not when six companies control at least 25% of it, and those six companies are spending almost every penny they make on a technology that hasn’t proven it will generate the returns everyone is expecting.
The Self-Assessment You Should Do
Before you buy your next S&P 500 index fund, ask yourself honestly: Can I afford to lose 30% to 40% of this money for two to three years? Would I panic sell if my index fund dropped 20%? Or do I need this money for something important in the next five years? If you answered “no” to the first two questions and “yes” to the third, then now is the time to diversify some of your contributions.
Not out of panic, but out of common sense based on the actual composition of the index and the risks these concentrated companies are taking. If you answered “yes” to the first two questions, then you’re probably fine keeping your S&P 500 index fund as your main investment. Just make sure you do so with clear eyes about what you’re buying.
ABOUT SAM BOURGI
Sam Bourgi is a finance analyst and researcher at InvestorsObserver, bringing over 13 years of expertise in financial markets, economics, and monetary policy. His professional background spans the private, nonprofit, and public sectors, where he has held positions such as senior policy adviser, labor market analyst, and marketing director. Sam’s in-depth research and market analysis have been referenced by leading institutions and organizations, including the U.S. Congress, Department of Justice, Chicago Board Options Exchange, Bank for International Settlements, Boston University Law Review, Barron’s, and Forbes. Sam regularly appears on TV, including CBN, KFYR TV, 11Alive, and ABC30, and is often quoted by such media outlets as the SF Chronicle and MSN.
ABOUT INVESTORS OBSERVER
InvestorsObserver is a trusted source of independent financial analysis, market insights, and investment research for individuals and institutions. Founded to empower retail investors with actionable intelligence, InvestorsObserver delivers timely commentary, data-driven studies, and accessible financial tools designed to simplify complex market trends. Its research and insights have been featured by various media outlets, including Yahoo, The Guardian, Morning Star, Nasdaq, and more.
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