Key Points
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The AI revolution has been driving economic growth across the globe.
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But growth is increasingly coming from an ever smaller group of countries.
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International diversification is great, but you need to watch sector and economic exposures as well.
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In its October 2026 World Economic Outlook report, the International Monetary Fund (IMF) set a global growth forecast of 3.1% for 2026 and 3.7% for 2027.
That could be considered fairly optimistic given how we’re dealing with high energy costs, a war in Iran, and slowing growth across several advanced economies, especially in Europe. But the artificial intelligence (AI) build-out is clearly having a positive impact that, for now at least, is outweighing all of these negative factors.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
But there are a couple of big problems, too.
Just like we’re seeing historically high concentration in the S&P 500 (SNPINDEX: ^GSPC), we’re also seeing concentration in where this growth is coming from and what’s driving it.
The global economy has developed a concentration problem
A couple of concerning stats came out of the IMF report:
- About 95% of global growth is coming from just 32 economies. That’s down from the 54 economies that were needed to account for growth back in April.
- If the AI productivity gains don’t happen as anticipated and AI investment slows as a result, it could reduce global GDP growth by 1.1% by 2028, with deeper losses expected in the United States and Asia.
Not only is global growth being driven by a significantly smaller number of countries, but the AI boom is also responsible for a large percentage of it right now.
Countries that are heavily participating in the AI investment cycle are clearly benefiting from huge spending on everything from semiconductors to data centers to equipment and other infrastructure. Those economies largely outside of that build-out are experiencing weaker growth.
Investors aren’t likely to complain much as long as companies keep spending on development and see the substantial revenue and earnings growth that goes along with it. But it’s pretty clear that the global economy is not experiencing broad-based strength. And it becomes very vulnerable to a sharp slowdown if revenue and earnings growth forecasts aren’t hit.
Which brings up perhaps the most important — and uncomfortable — question facing the economy right now: What happens if the AI investment boom that’s currently supporting global growth starts to slow?
International diversification may not help much
The natural instinct for investors with U.S. tech-heavy portfolios that still want to remain invested in equities might be to look overseas.
While that’s a good idea for a high-level portfolio construction process, investors might want to be realistic about how much it could help during an AI investment slowdown.
If you already own something like the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the Vanguard Total Stock Market ETF (NYSEMKT: VTI), adding the Vanguard Total International Stock ETF (NASDAQ: VXUS) may provide geographic diversification. But it may not mitigate some of the underlying economic exposure.
Some of the biggest Asian countries involved in the AI boom are South Korea, Taiwan, China, and Japan. Here are the allocations to those countries in the Vanguard Total International Stock ETF:
| Country |
Allocation |
| Japan |
16.1% |
| Taiwan |
9.3% |
| China |
6.9% |
| South Korea |
6.7% |
Data source: Vanguard.
That’s nearly 40% of the portfolio committed to some pretty AI-involved economies. The reduction of reliance on U.S. mega-cap tech stocks is, in isolation, a good thing. But you may be just trading AI exposure in the United States for AI exposure somewhere else.
Granted, tech exposure in the Vanguard Total International Stock ETF is a comparatively smaller 19%. So there is some added sector diversification in there. But it may not be as much diversification as you think you’re getting.
How to protect your portfolio today
The market seems comfortable with the idea that corporate earnings growth, for both the remainder of this year and 2027, can push stock prices higher. But there will inevitably be a peak in this AI spending cycle, and growth will start to slow.
Long-term investors shouldn’t make radical portfolio changes, but they probably do want to be more careful about adding tech, growth, and/or semiconductor stocks here.
International equity is certainly useful and a good idea. But investors here should ensure that they’re diversifying themselves both geographically and economically.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger
Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005.
But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout, a massive technology build-out that Google’s CEO says could be more profound than fire or electricity.
While everyone watches the chip designers, one “backbone” company provides the critical technology that Nvidia and AMD literally cannot function without. We’ve detailed this under-the-radar player in our new AI Playbook.
Continue »
David Dierking has positions in Vanguard Morningstar Total Stock Market ETF and Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
