The AI Stock Bubble: Why XEQT Investors Can Sleep at Night

Last Thanksgiving, my cousin showed me his portfolio on his phone between helpings of turkey. He had put basically everything into NVIDIA, Microsoft, and a leveraged AI ETF. His returns over the previous year were jaw-dropping – something like 80%. He was grinning ear to ear.

“You’re still doing that boring index fund thing?” he asked. I nodded, taking another bite of stuffing. “You know AI is different, right? This isn’t some fad. This is the future.”

He wasn’t wrong about AI being transformative. But something about the certainty in his voice reminded me of conversations I heard in 1999 about the internet, and again in 2021 about crypto. The technology was real every time. The stock prices, however, had a way of getting ahead of themselves.

I’m not here to tell you AI is a bubble. I genuinely do not know if it is. Nobody does. What I am here to tell you is that if you hold XEQT, you do not need to know. And that is a very comfortable place to be.

1. The Magnificent 7 and the Most Concentrated Market in Decades

Let’s start with what is actually happening in the market right now, because the numbers are genuinely wild.

As of early 2026, the so-called “Magnificent 7” stocks – Apple, Microsoft, NVIDIA, Amazon, Alphabet (Google), Meta, and Tesla – make up roughly 30% of the entire S&P 500 index. That means if you buy a simple S&P 500 index fund like VFV or VOO, nearly a third of your money goes into just seven companies. All of them are heavily tied to the AI narrative.

NVIDIA alone, riding the AI chip boom, has at times been worth more than the entire stock markets of most countries. Microsoft’s market cap has been hovering around $3 trillion. Apple is in a similar neighbourhood. These are staggering numbers.

Here is where it gets interesting for Canadian investors. A lot of folks I talk to think they are “diversified” because they hold an S&P 500 fund. But look at the sector breakdown:

Over half of the S&P 500 is now in tech or tech-adjacent sectors. That is not diversification. That is a tech bet with some other stuff sprinkled on top.

And the thing about concentration is that it feels great on the way up. When AI stocks are surging, a concentrated portfolio delivers amazing returns. Your cousin looks like a genius. You feel like you are missing out. But concentration is a double-edged sword – the same force that amplifies gains also amplifies losses.

2. We Have Seen This Movie Before

I do not want to be the person who cries “bubble” every time stocks go up. Markets are supposed to go up over time. Innovation is supposed to be rewarded. But history gives us some uncomfortable parallels that are worth examining honestly.

The Dot-Com Bubble (1995-2000)

The internet was genuinely revolutionary. That part of the story was correct. But the stock market went insane.

• The Nasdaq Composite rose over 400% from 1995 to its peak in March 2000
• Companies with no revenue were valued in the billions based on “eyeballs” and “page views”
• Cisco, the “picks and shovels” play of the internet era (much like NVIDIA is for AI), hit a market cap of $555 billion in March 2000
• Cisco’s stock then fell 86% and did not recover to its 2000 peak for over 20 years
• The Nasdaq itself fell 78% from peak to trough and took 15 years to recover

The internet changed the world. The stocks still crashed.

The Nifty Fifty (1960s-1970s)

Before the dot-com bubble, there was the “Nifty Fifty” – a group of 50 large-cap growth stocks that investors considered “one-decision” buys. The list included Xerox, Polaroid, Kodak, and IBM. They were the “Magnificent 7” of their era.

• These stocks traded at 50-90x earnings, justified by the idea they would “always” grow
• The 1973-1974 bear market crushed them. Many fell 60-80%
• Several of those “forever” companies – Polaroid, Kodak, Xerox – eventually went bankrupt or became irrelevant

A Pattern Worth Noticing

Here is a table that should give any concentrated investor pause:

I am not predicting the last row. I am pointing out that every era has its “this time is different” story. Sometimes the underlying technology really does change the world. But that does not mean every stock price is justified, or that a correction is impossible.

3. How XEQT’s Structure Naturally Limits Concentration Risk

This is where XEQT quietly shines, and why I sleep perfectly well at night while my cousin refreshes his brokerage app at 3 AM.

XEQT is a fund of funds. It holds four underlying iShares ETFs that together give you exposure to roughly 9,000+ stocks across 49 countries. But the key insight for this discussion is how that structure naturally dilutes any single stock, sector, or theme.

Here is how XEQT’s tech exposure compares to a pure S&P 500 fund:

Look at those numbers carefully. If NVIDIA dropped 50% tomorrow:

• In a pure S&P 500 fund, that single stock move would drag your portfolio down roughly 3-3.5%
• In XEQT, the same move would cost you roughly 1-1.5%

And that is just one stock. If the entire Magnificent 7 corrected by 40% (which is roughly what happened to big tech in 2022), here is the approximate portfolio impact:

• S&P 500 fund: Down roughly 12% from the Mag 7 alone, before counting any spillover effects
• XEQT: Down roughly 5-6% from the Mag 7 alone, and potentially offset by gains in other regions

This is not magic. It is just math. When you own the entire world, no single story – no matter how dominant it feels – can wreck your portfolio.

4. XEQT’s Regional Diversification: The Part Most People Overlook

The sector diversification story is important, but the geographic diversification story might matter even more.

When the dot-com bubble burst in the US, international markets did not crash nearly as hard. When Japan’s bubble burst in 1989, the rest of the world kept growing. Regional bubbles tend to be exactly that – regional.

Here is how XEQT spreads your money around the world:

• United States (~45%): Yes, you still have significant US exposure, including the Magnificent 7. But it is 45%, not 100%.
• Canada (~25%): Canadian banks, energy companies, and miners that have very little to do with AI valuations.
• International Developed (~20%): European pharmaceutical companies, Japanese auto manufacturers, Australian mining firms, Swiss consumer goods giants. These businesses are driven by completely different forces than AI hype.
• Emerging Markets (~10%): Indian tech services, Chinese consumer companies, Brazilian commodity producers. A whole different economic universe.

If AI stocks correct sharply, here is what likely happens inside your XEQT portfolio:

• Your US tech holdings take a hit (roughly 12-14% of your total portfolio is in US tech)
• Your Canadian holdings are largely unaffected (banks and energy do not care about NVIDIA’s earnings)
• Your international holdings may actually benefit as money rotates out of overvalued US tech into cheaper international stocks
• Your emerging market holdings continue to be driven by their own local economic dynamics

This is diversification working exactly as intended. Not every part of your portfolio goes up at the same time, but critically, not every part goes down at the same time either.

5. What Actually Happens to Concentrated Portfolios When Bubbles Pop

Let me paint a picture with real numbers, because I think a lot of people underestimate how devastating concentration can be.

Imagine two Canadian investors, both starting with $100,000 in January 2000, right before the dot-com bubble burst:

Investor A holds a concentrated tech portfolio (proxied by the Nasdaq 100):

• March 2000 peak: Portfolio hits roughly $110,000
• October 2002 trough: Portfolio falls to roughly $24,000
• A loss of 78% from peak
• It takes until 2015 – fifteen years – just to get back to even
• Adjusted for inflation, the real recovery took even longer

Investor B holds a globally diversified portfolio similar to what XEQT provides today:

• March 2000: Portfolio at roughly $105,000
• October 2002 trough: Portfolio falls to roughly $65,000
• A loss of 38% from peak – painful, but survivable
• Recovery to previous highs by roughly 2006-2007 – about 6 years
• With continued contributions during the downturn, recovery is even faster

The difference is not subtle. Investor A spent 15 years just trying to get back to where they started. Investor B was back on track in 6 years and, with regular contributions, probably came out ahead even sooner.

And here is the part that really stings: during those 15 years that Investor A was underwater, Investor B’s portfolio was compounding and growing. By the time Investor A finally recovered to $100,000, Investor B might have been sitting at $200,000 or more.

Concentration does not just hurt you during the crash. It steals your compounding years.

6. “But What If AI Isn’t a Bubble?”

This is the question I hear most often, and it is a completely fair one. What if AI really is the most important technology since electricity? What if NVIDIA, Microsoft, and the rest of the Magnificent 7 keep growing for decades? Am I leaving money on the table by holding XEQT instead of going all-in on tech?

Here is my honest answer: maybe, in the short term. If AI stocks keep ripping higher for the next two years, a concentrated tech portfolio will outperform XEQT. That is how concentration works – when you bet right, you win bigger.

But consider a few things:

You still own the AI winners inside XEQT. NVIDIA, Microsoft, Apple, Google, Amazon, Meta – they are all in there. XEQT holds them because they are among the largest companies in the world. You are not missing out on AI. You just have a smaller, more prudent position.

You do not need to predict the future. This is the most underrated benefit of global diversification. I do not know if AI stocks will keep going up. Neither do you. Neither does your cousin. Neither do the analysts on CNBC. XEQT is designed so that you do not need to know.

The next big thing might not be AI. In 2000, everyone “knew” the internet was the future, and they were right. But the biggest stock market returns over the following decade came from emerging markets, energy stocks, and real estate. The technology that changes the world and the stocks that generate the best returns are often not the same thing.

Survivability matters more than optimization. Even if an all-tech portfolio delivers slightly higher returns over 30 years (which is far from guaranteed), the psychological and financial toll of the inevitable 50-70% drawdowns along the way will cause most people to sell at the worst possible time. A portfolio you can actually hold through the bad times will almost always outperform a “better” portfolio you panic-sell during a crash.

7. The Beauty of Not Having to Be Right

I want to dwell on this point because I think it is the single best argument for XEQT in any market environment, but especially this one.

Right now, the investing world is split into two loud camps:

Camp 1: “AI is the future, go all in!”

• AI will create trillions in new economic value
• The Magnificent 7 are reasonably valued given their growth
• This time really is different because AI is a general-purpose technology
• If you don’t own tech, you are falling behind

Camp 2: “It’s a bubble, get out!”

• Valuations are stretched beyond reason
• The dot-com parallels are obvious
• Retail investors piling in is a classic top signal
• A massive correction is coming

Here is the beautiful thing about XEQT: both camps could be right, and you will be fine either way.

If Camp 1 is right and AI stocks keep soaring, your XEQT portfolio participates through its US tech holdings. You will not beat a concentrated tech portfolio, but you will earn strong returns.

If Camp 2 is right and AI stocks crash, your XEQT portfolio absorbs the hit through its global diversification. You will lose less than concentrated investors, recover faster, and avoid the temptation to panic-sell because your losses will be manageable.

If the truth is somewhere in the middle – which is usually where it ends up – XEQT will do just fine. Maybe AI stocks plateau while international markets catch up. Maybe there is a modest correction followed by a resumption of growth. In any scenario short of a global apocalypse, XEQT keeps chugging along.

You do not need to pick a camp. You do not need to be right. You just need to keep buying and holding. That is an incredibly freeing realization in a world where everyone is screaming about AI valuations in one direction or the other.

8. A Simple Gut Check for Your Portfolio

If you are reading this and wondering whether your current portfolio is too concentrated in AI or tech, here are some questions to ask yourself:

• Do more than 30% of your holdings have the word “tech,” “AI,” or “innovation” in their name? If so, you might be more concentrated than you think.

• Can you name the top 5 holdings in your portfolio and are they all tech companies? NVIDIA, Apple, Microsoft, Google, Amazon is not diversification – it is a sector bet.

• Would a 50% drop in tech stocks cause you to lose more than 20% of your total portfolio? If yes, your concentration risk is high.

• Could you hold your portfolio through a 2-3 year tech bear market without selling? Be honest with yourself. If the answer is no, you have too much in tech.

• Are you checking AI stock prices multiple times a day? This is usually a sign that you have more riding on one outcome than you are comfortable with.

If any of these questions made you uncomfortable, it might be worth considering a shift toward broader diversification. You do not have to go from 100% tech to XEQT overnight. But gradually building a globally diversified core holding can give you the peace of mind that comes with knowing you are prepared for any outcome.

9. My Approach: Boring, Diversified, and Sleeping Great

I will be honest about how I handle the AI temptation: I acknowledge it, and then I do nothing.

Every time I see NVIDIA up another 5% in a day, I feel a twinge of “what if I had put more in tech.” Every time a friend shows me their concentrated portfolio outperforming mine, I feel a flash of envy. Those feelings are normal and human.

But then I remind myself of a few things:

• I do not know the future, and neither does anyone else
• I have seen “sure things” collapse before (crypto in 2022, cannabis stocks in 2019, oil stocks in 2014)
• My XEQT portfolio is designed to perform well across every possible future, not just the one where AI stocks keep going up
• The peace of mind I get from not worrying about single-stock risk or sector concentration is worth more to me than a few extra percentage points of return
• I am investing for 20-30 years. Over that timeframe, diversification has always won

My cousin’s portfolio might outperform mine this year. Maybe even next year. But I am playing a different game. I am playing the game where I do not need to be right about AI, or about anything else. I just need to keep buying XEQT every month, reinvest the dividends, and let the entire world economy work for me.

That is a game I can win. And more importantly, it is a game I can stick with – through bubbles, crashes, trade wars, pandemics, and whatever else the next few decades throw at us.

Final Thoughts

AI might be the most important technology of our generation. It might reshape every industry on earth. I actually believe that is probably true.

But believing that AI is transformative and believing that AI stock prices can only go up are two very different things. The internet was transformative, and internet stocks still crashed 78%. Japanese manufacturing was transformative, and Japanese stocks took 34 years to recover. The technology being real does not protect you from paying too much for it.

XEQT gives you a seat at the AI table – you own all the big AI winners through your US equity allocation. But it also gives you seats at every other table in the global economy. If AI delivers on every promise, you participate. If it disappoints, you are protected. If something completely unexpected happens – a new technology, a new economic power, a new market leader nobody saw coming – you own that too.

You do not need to predict the future. You do not need to pick the winners. You do not need to time the bubble.

You just need XEQT and a little patience.