CEO of R$11 trillion fund in Norway: AI creates concentration risk “we’ve never seen”

The head of Norway’s $2 trillion oil sovereign wealth fund has issued a warning to investors who have profited from the artificial intelligence (AI) stock market boom, warning that “we are heading towards a period of low returns.”

Nicolai Tangen, CEO of Norges Bank Investment Management, said there is a new reality in the stock market amid geopolitical tensions and falling liquidity.

“The time of very low interest rates is over. The world is a much more dangerous place,” Tangen told the “Unhedged” podcast.

Companies that have solidified their position at the top of this new reality are becoming a risk in themselves. Businesses that create or design AI semiconductor chips and those that leverage the technology for their growing AI capabilities have seen huge share appreciation in recent years.

Tangen highlighted that the lead in the stock market is very narrow, pointing out that the top of the market is now made up of “companies with some kind of connection to AI,” while the top 10 companies in the US S&P 500 represent about 20% of the index.

“The concentration is absolutely worrying. This means there is risk in the stock market that we have never seen before.”

Tangen described how the stock market’s biggest players are now tightly intertwined around the microchip business. He cited Dutch giant ASML, “which makes the machines to make the chips,” before selling them to Taiwan. Many chips are then designed by Nvidia, before being sold to companies like Amazon, Meta and Microsoft.

“So there are very few companies linked to them and they are getting bigger and more important.”

Norway’s technological risk

Despite his warnings about the risk of stock market concentration, Tangen’s $2 trillion oil fund is heavily invested in companies he cited as key risk areas.

Norges has more than 1% stake in the largest US technology groups, including Microsoft, Apple, Nvidia and Alphabet. It also holds a significant stake in Taiwan Semiconductor Manufacturing Company (TSMC).

Collectively, Norges owns shares worth $196 billion in Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, TSMC and ASML.

Tangen said the strong regulation of AI in Europe means it is likely that big technology players will continue to come from the US.

“We barely have big technology companies in Europe, we are far behind. Will we be able to achieve it? I would be surprised if we could.

“In America, you have a lot of AI and little regulation, and in Europe, you have little AI and a lot of regulation.”