Managers refine how they navigate AI market concentration

NOVEMBER 2025 ACTIVE MANAGEMENT INSIGHTS

Key takeaways

• Global policy support is generally constructive, improving macroeconomic pathways and creating a more conducive environment for stocks.
• Managers believe there’s a need for careful positioning in AI stocks due to high concentration and elevated valuations. 
• Managers see a broadening opportunity set with green shoots in Europe, Japan, and Brazil.

1. AI offers opportunities, but managers are discerning given the FOMO rally behind mega-cap tech stocks.
Amid headline-grabbing AI funding rounds, managers are focusing on specialist infrastructure and supply-chain bottleneck companies with clear order-book visibility and strong pricing power. These include semiconductors and components. Value investors are rotating into certain enterprise software and business intelligence tools that are attractive for their underappreciated resilience and lower substitution risk. Meanwhile, smaller-cap specialists recognize opportunities in early-stage SaaS and AI applications that use large language models and agentic AI, but are focusing on quality businesses with durable growth over speculative momentum.

2. The AI rally is a rhyme but not a repeat of history.
In spite of the concentration effects of popular AI stocks driving sentiment, managers are quick to dismiss that this is not the same bubble of the dot-com era. They recognize that AI developments offer visible structural growth through workplace and industrial transformation, and that corporate earnings and profitability levels are stronger. However, there is a growing risk of financial correction, given high growth expectations and potentially excessive levels of capex.

3. Gold and base metals continue to rally.
Precious metals have surged on rate-cut expectations and central-bank accumulation. Some managers are rotating into metals like copper and iron, which are positioned to gain from supply shortages, electrification demand, and subsequent longer-term price support.

4. European financials are seen as an underappreciated rally that has legs to run.
After years of deleveraging and austerity, European banks and insurers returned to profitability with higher interest rates. Credit growth is poised to further benefit from rising consumer demand, supported by low unemployment, strong savings, and improving retail sales.

5. The macro outlook looks increasingly positive.
Global sentiment is improving as policymakers cut rates and expand fiscal support. Easing financial conditions are translating into stronger growth expectations, particularly across cyclical sectors, financials, and real assets.

Managers are balancing AI optimism with discipline.
U.S. equity managers remain constructive on AI’s long-term potential but view recent circular funding rounds as signs of excess. U.S. Federal Reserve dovishness supports financials and M&A activity, while healthcare has regained favor among value investors who see pricing clarity and regulatory visibility starting to improve.

Value and cyclical stocks are regaining favor. 
European and UK managers continue to avoid AI-driven momentum stocks, instead focusing more on traditional cyclicals. Supported by low unemployment, high savings, and improving retail sales, sectors such as industrials, consumer goods, and financials are driving tangible, fundamentally-driven returns.

Managers see continued support for Japanese equities amid policy stability.
Under new Prime Minister Sanae Takaichi, managers expect accommodative monetary policy and fiscal expansion to continue. The prospect of stimulus in agriculture, defense, and tax relief has bolstered sentiment. Financials and domestically focused firms are seen as key beneficiaries, though some managers are beginning to take profits after recent strong performance.

Key developing markets are showing selective strength.
In particular, China’s domestic AI ecosystem continues to expand amid supply-chain restrictions, with managers identifying homegrown innovation that has led a similar tech rally to developed market counterparts. Strategically, investors prefer globally diversified manufacturers that can navigate tariff disruptions. Managers also see Brazil as attractive due to high real yields and easing inflation. Meanwhile, India and ASEAN markets face headwinds from elevated rates and uneven policy execution.
 

Caution is setting in amid gold’s extended rally.
With valuations appearing stretched, Australia equity managers are rotating toward industrial and logistics businesses positioned to benefit from structural efficiency gains and automation demand. 
 

Monetary easing and fiscal support are creating a constructive backdrop for risk assets, including tangible assets such as metals and cyclically sensitive areas such as financials.

AI market concentration and elevated valuations are prompting managers to be selective, focusing on valuation discipline, quality leadership, and pricing power. Managers are also diversifying as a consequence, highlighting expanding opportunities beyond the U.S. in Europe, Japan, China, and Brazil that position portfolios for broader global participation heading into the new year. 

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.