MIAMI: The latest earnings season is drawing to a close, and it’s revealed how the artificial intelligence boom is engulfing more and more of the S&P 500 Index. The profits are pouring in, yet the US is increasingly a single-narrative market - one where stocks will swoon together when the music stops playing.

The overwhelming majority of sectors is growing swiftly, thanks not only to the fortunes of advanced chip designers and hyperscalers but also less sexy memory companies including Sandisk, which went from a US$5 billion capitalisation last year to one of the world’s 100 most valuable firms.

Then, there are the real estate, industrials and materials companies doing the hard work of erecting new town-sized data centres. And don’t forget the bankers, making great money executing all these deals. (The forthcoming crop of AI mega-IPOs sure won’t hurt.)

The stock market and large parts of the real economy have, in essence, hitched their wagons to a single thematic that can turn on a dime. Investors who have owned the S&P 500 for a long time may be surprised by the size of their AI exposure.

While it’s tempting to keep riding the wave, they’d be wise to try to restore a semblance of diversification to their portfolios. For some, that may mean rebalancing by selling shares of a few winners. Others may look to uncorrelated sectors including energy or even adding to Treasury holdings: They won’t offer quite the same upside, but they will cushion the fall if the bottom drops out.

One way to think about this is simply in terms of direct exposure. Constituents of Bloomberg Intelligence’s AI theme basket now make up around 45 per cent of the S&P 500 Index by weighting. If you add in companies tied to compute infrastructure and the AI power theme, you’re up to around 53 per cent of the index.

The only sector groups without large, direct exposure to the AI trade at the moment are energy, healthcare, consumer staples and banking (which has the M&A and IPO revenue stream I mentioned earlier).