A prominent Wall Street strategist, known for his controversial critique of passive investing, now argues that the integration of artificial intelligence into ETF strategies is deepening systemic risks in financial markets. He cites rising concentration in major indices and AI-driven trading as key contributors to distorted price discovery.
- AI-driven trading now accounts for over 40% of flows in tech-focused ETFs like ARKK
- Top 10 S&P 500 stocks represent 30% of index market cap, up from 22% in 2015
- ARKK ETF assets reached $68 billion in late 2025, a 400% increase over five years
- Over 70% of U.S. equity trading volume is algorithmically driven as of 2025
- Strategist claims AI is amplifying market concentration and distorting price discovery
- Concerns are growing among regulators about synchronized AI-driven sell-offs
The strategist, whose earlier warnings about passive investing drew widespread attention, has issued a fresh warning that the trend toward index-tracking funds has evolved into a far more dangerous dynamic, worsened by AI-powered trading algorithms. He contends that the dominance of a few large-cap equities—particularly within ETFs like SPY, QQQ, and VTI—has created artificial market conditions where price movements no longer reflect fundamental valuations. Data shows that as of late 2025, over 70% of U.S. equity trading volume is now influenced by algorithmic strategies, with AI-driven models accounting for more than 40% of flows in tech-heavy ETFs such as ARKK. This concentration has led to extreme valuation divergences: the top 10 stocks in the S&P 500 now comprise nearly 30% of the index’s market cap, up from 22% a decade ago. Meanwhile, the ARKK ETF, which targets innovative companies, has seen its assets grow to $68 billion, representing a 400% increase over five years. The strategist argues that such structural shifts undermine market efficiency, as AI systems amplify momentum and herd behavior, particularly in sectors like technology. This creates feedback loops where rising prices attract more algorithmic buying, further distorting valuations. The result, he warns, is a market increasingly disconnected from economic reality, where a handful of tech giants dictate broader market direction. Market participants, including institutional investors and regulators, are beginning to take notice. The growing influence of AI in portfolio construction raises concerns about systemic risk, especially during periods of volatility. The convergence of passive exposure and algorithmic trading may lead to synchronized sell-offs, as seen in recent market corrections when AI models simultaneously de-risked positions.