Gabriela Santos, J.P. Morgan Asset Management’s chief market strategist for the Americas, said true diversification from the artificial intelligence (AI) trade is now hard to find.

Speaking on CNBC’s “Closing Bell Overtime,” Santos said the AI capital expenditure buildout has grown so large that its effects now touch nearly every asset class, from equities to fixed income and private markets.

A Summer of Hard Lessons

Santos said the summer’s momentum unwind hit AI-linked stocks hardest in July and continued into August. The episode underscored a key lesson for AI-bullish investors.

“You can be really really bullish AI and still need to think really really carefully about portfolio construction.”

Gabriela Santos, CNBC

She said that means paying closer attention to position sizing, leverage, and diversification. That holds even for investors who remain convinced AI will keep driving an extended earnings cycle.

Santos added that the AI buildout keeps shifting shape, making old sector groupings less reliable. Hyperscalers, chipmakers, and software companies increasingly diverge within their own groups, rather than moving as one block.

The concern echoes warnings elsewhere on Wall Street. One prominent investor has said the market now behaves like a single AI trade.

Where Diversification Still Works

J.P. Morgan built an AI factor basket to test how closely assets and portfolios track the broader AI trade. Santos said the results show most assets now moving together.

Genuine diversification is mostly limited to treasuries, gold, core real estate, and European equities. That scarcity echoes recent warnings about a broader stock-bond diversification collapse.

Historically, bonds reliably cushioned portfolios whenever a recession hit. For two decades after the financial crisis, low yields meant bonds alone did the job.

However, Santos said that dynamic has changed. Competition for capital has returned alongside supply shocks, inflation, and rate volatility. She said investors now need additional inflation-resistant assets to round out their positioning.

Whether that mix holds may depend on how AI-related capital spending evolves through the rest of the year.

Source: BeInCrypto