Only for a second final week, Larry Ellison, co-founder of US cloud computing firm Oracle, grew to become the world’s richest individual.
The octogenarian tech titan briefly overtook Elon Musk after Oracle’s share value rocketed 43% in a day, adding about US$100 billion (A$150 billion) to his wealth.
The explanation? Oracle inked a deal to supply synthetic intelligence (AI) large OpenAI with US$300 billion (A$450 billion) in computing energy over 5 years.
US president Donald Trump with Softbank’s Masayoshi Son, Oracle’s Larry Ellison and OpenAI’s Sam Altman.
Whereas Ellison’s second within the highlight was fleeting, it additionally illuminated one thing much more vital: AI has created extraordinary ranges of focus in world monetary markets.
This raises an uncomfortable query not just for seasoned buyers – but additionally for on a regular basis Australians who maintain shares in AI corporations through their superannuation. Simply how uncovered are even our supposedly “secure”, “diversified” investments to the AI growth?
The person who constructed the web’s reminiscence
As billionaires go, Ellison isn’t as a lot of a family identify as Tesla and SpaceX’s Musk or Amazon’s Jeff Bezos. However he’s been constructing wealth from enterprise expertise for almost 5 a long time.
Ellison co-founded Oracle in 1977, reworking it into one of many world’s largest database software program corporations. For many years, Oracle supplied the unglamorous however important plumbing that saved many company methods operating.
The AI revolution modified all the things. Oracle’s cloud computing infrastructure, which helps corporations retailer and course of huge quantities of information, grew to become vital infrastructure for the AI growth.
Each time an organization desires to coach massive language fashions or run machine studying algorithms, they want huge amounts of computing power and information storage. That’s exactly the place Oracle excels.
When Oracle reported stronger-than-expected quarterly earnings this week, pushed largely by hovering AI demand, its share value spiked.
That response wasn’t nearly Oracle’s enterprise fundamentals. It was about all the AI ecosystem that has been reshaping world markets since ChatGPT’s public debut in late 2022.
The nice AI focus
Oracle’s story is a part of a a lot bigger phenomenon reshaping world markets. The so-called “Magnificent Seven” tech shares – Apple, Microsoft, Alphabet, Amazon, Meta, Tesla and Nvidia – now management an unprecedented share of main inventory indices.
Yr-to-date in 2025, these seven corporations have come to symbolize roughly 39% of the US S&P500’s whole worth. For the tech-heavy NASDAQ100, the determine is a whopping 74%.
This implies in the event you spend money on an exchange-traded fund that tracks the S&P500 index, usually thought of the gold commonplace of diversified investing, you’re making an more and more concentrated guess on AI, whether or not you realise it or not.
Are we in an AI ‘bubble’?
This degree of focus has not been seen for the reason that late Nineties. Again then, buyers have been swept up in “dot-com mania”, driving expertise inventory costs to unsustainable ranges.
When actuality lastly hit in March 2000, the tech-heavy Nasdaq crashed 77% over two years, wiping out trillions in wealth.
Immediately’s AI focus raises some related purple flags. Nvidia, which controls an estimated 90% of the AI chip market, at present trades at greater than 30 occasions anticipated earnings. That is costly for any inventory, not to mention one carrying the hopes of a complete technological revolution.
But, not like the dot-com period, right this moment’s AI leaders are worthwhile corporations with actual income streams. Microsoft, Apple and Google aren’t cash-burning startups. They’re established giants, utilizing AI to boost current companies whereas producing substantial income.
This makes the present scenario extra difficult than a easy “bubble” comparability. The academic literature on market bubbles suggests real technological innovation usually coincides with speculative extra.
The query isn’t whether or not AI is transformative; it clearly is. Slightly, the query is whether or not present valuations replicate sensible expectations about future profitability.
Hidden publicity for a lot of Australians
For Australians, the AI focus downside hits remarkably near residence by way of our superannuation system.
Many balanced tremendous fund choices embody substantial allocations to worldwide shares, usually 20–30% of their portfolios.
When your tremendous fund buys worldwide shares, it’s usually getting heavy publicity to those self same AI giants dominating US markets.
The focus danger extends past direct investments in tech corporations. Australian mining corporations, resembling BHP and Fortescue, have turn into oblique AI gamers as a result of their copper, lithium and uncommon earth minerals are essential for AI infrastructure.
Even diversifying away from expertise doesn’t absolutely escape AI-related dangers. Analysis on portfolio concentration reveals when main indices turn into dominated by a couple of massive shares, the advantages of diversification diminish considerably.
If AI shares expertise a major correction or crash, it might disproportionately affect Australians’ retirement nest eggs.
A actuality test
This example represents what’s known as “systemic focus danger”. It is a particular type of systemic risk the place supposedly diversified investments turn into correlated by way of frequent underlying components or exposures.
It’s harking back to the 2008 monetary disaster, when seemingly separate housing markets throughout totally different areas all collapsed concurrently. That was as a result of they have been all uncovered to subprime mortgages with excessive danger of default.
This doesn’t imply anybody ought to panic. However regulators, tremendous fund trustees and particular person buyers ought to all concentrate on these dangers. Diversification solely works if returns come from a broad vary of corporations and industries.
- Angel Zhong, Professor of Finance, RMIT University and Jason Tian, Senior Lecturer, Swinburne University of Technology
This text is republished from The Conversation beneath a Inventive Commons license. Learn the original article.
