JPMorgan warns of AI market 'exuberance' with just 42 companies responsible for 65-80% of S&P 500 returns.

J.P. Morgan warns that "there are signs of investor exuberance" in AI-related financial markets. Since ChatGPT launched in 2022, just 42 AI companies in the S&P 500 have driven roughly 65 to 80 percent of the entire index's profits, revenues, and investments.

The semiconductor rally is displaying technical patterns reminiscent of the dotcom bubble. Hedge funds are heavily invested in chip and hardware stocks, margin lending on the Korean stock exchange is climbing, and retail traders are piling into semiconductor options. Leveraged chip ETFs—funds that amplify price swings—have quintupled their influence on global stock markets since early 2024, with gains concentrated in only a handful of stocks.

Extreme concentration defines the broader market. The ten largest US stocks now account for approximately 40 percent of the S&P 500's market capitalization, up from 17 percent in 2015. While this represents a significant increase, J.P. Morgan notes that the US still ranks among markets with relatively low stock concentration globally. Only India and Japan show lower concentration levels.

Nvidia maintains the largest share of the AI accelerator market but is losing ground, with its market share slipping from 85 percent in 2023 to an estimated 75 percent by 2026. Custom chips from major cloud providers offer a compelling alternative: Google's TPUs and Amazon's Trainium cut operating costs by 30 to 40 percent compared to Nvidia GPUs. Anthropic, for instance, has committed to running its AI Claude on Amazon's Trainium for the next decade.

J.P. Morgan also flags revenue risks at leading AI laboratories like OpenAI and Anthropic. While sales are growing rapidly, compute costs remain massive, and future profitability is uncertain. Rising token prices are already pushing companies toward cheaper alternatives. Companies are shifting tasks to lower-cost models, average token prices are falling, and Chinese open-source models are approaching top-tier performance at a fraction of the cost.

Economic conditions further compound these pressures. Tech investment's share of economic growth is rising while free cash flow margins at major cloud providers are shrinking and their debt financing is growing. Taken together, J.P. Morgan concludes that AI is creating multiple layers of concentration risk across markets, infrastructure, and the broader economy—a concern echoed by NYU finance professor Aswath Damodaran, who has warned that an AI crash could hit harder than the dotcom bust.