How much of my money should be riding on AI?

How much of my money should I have in AI if no one knows whether it’ll live up to the hype?

If nobody knows whether AI will live up to the hype, how should investors handle that uncertainty? After all, most of us don’t like ambiguity when it comes to our money.

For Karen Ward, saying “I don’t know” is exactly what helps her decide where to invest. And the starting point is recognising just how much AI is already in your portfolio.

How much of the stock market is already tied to AI?

Around half of the S&P 500An index that tracks the performance of the 500 largest publicly traded companies in the United States. It's often used as a benchmark for the overall global stock market. is made up of companies linked to AI in some way. It’s a similar story in emerging marketsA country with an economy considered to be at an earlier stage of development than a more established country - e.g. India compared to the USA.. Countries such as Korea produce many of the key ingredients for the technology, including semiconductors and memory chips, which means around 50% of the emerging markets benchmark is also tied to AI.

How much of your money should you invest in AI?

That leads Karen to a simple question every investor should ask: if the honest answer is “I don’t know”, how much of your money do you want tied up in that one theme?

“I personally don’t want half of my money in a theme where I don’t have enough visibility,” she says. “I certainly want some, because it could be amazing. But I don’t want half.”

Instead, she prefers to diversifyThe process of spreading your investment portfolio across different asset classes, such as partially in shares and partially in bonds, in order to reduce risk. her money into areas where she has more conviction. She’s positive on financial companies, such as banks, because we’re unlikely to return to negative interest rates The amount that a lender charges someone for taking out a loan or a mortgage. It's calculated as a percentage of the amount borrowed - for example, 3%.and private sector debt is low. These are well-established businesses, so she feels confident predicting what their earnings will look like.

She also likes energy and commodity companies around the world, as she believes we’re in a structurally different world where energy prices will stay higher.

How can you diversify your tech investments?

Even within technology, Karen says diversification matters. One concern is what professionals call single-name concentration, where one company makes up a large share of an index. For example, if you buy an emerging markets tracker, memory chip maker SK Hynix makes up a huge part of it.

That’s risky at this stage of the AI story. “We’ve done the creation; now we’re in the deployment,” she says. This is when we find out who the real winners and losers are, and they’re not always who you’d expect. A company you’ve never heard of could come along with the next big breakthrough.

Her advice is to spread your risk both within the tech sector and across other parts of the global stock market that aren’t as dependent on this single theme.

Is Europe being overlooked?

So which parts of the world might investors be missing? Karen’s answer may surprise some: she really likes European stocks, including the UK.

She knows not many people agree with her. For the last 15 years, Europe and the UK have had a pretty horrid time compared to the US, delivering nowhere near the same earnings growth or returns. Because this has gone on so long, many investors have convinced themselves that the FTSEAlso called “Footsie”, the name for the share index made up of the largest 100 companies by market capitalisation (total value of all shares) listed on the London Stock Exchange. is a bit of a dud, and that the US is simply better at building great companies and growing profits than Europe.