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AI frenzy creating significant market divergence

ICICIdirect Research 29 May 2026 DISCLAIMER

The AI boom has amplified major global stock indices, with tech-heavy benchmarks in Taiwan, Japan, Korea, and the U.S. hitting historic highs. In Taiwan and South Korea, the AI hardware supply chain dominates market momentum. Similarly, Japan's Nikkei has surged on the back of specialized semiconductor equipment manufacturers, while the U.S. S&P 500 and Nasdaq are driven almost entirely by mega-cap AI chip designs and cloud infrastructure leaders.
In all these markets, Technology sector holds more than 50% weight in the respective indices and the weight in Taiwanese index is even beyond 70%. The TSMC itself has more than 40% weight in the index. In Korea where Technology stocks holds ~60% weight, top 2 stocks (Samsung and SK Hynik) together holds ~55% weight. The same goes with Japan where Technology as a sector contributes ~55% and top 2 stocks Advantest Corp and Soft Bank holds ~20% weight in the headline index. Nasdaq which has been touted as US technology index has given ~20% returns during so far primarily driven by MAG-7 stocks & AI related stocks (Chip manufacturers and Cloud companies like NVIDA along with Microsoft, Amazon, Alphabet, Meta and Tesla).  
Non-technology sectors have remained completely muted, creating significant market divergence. This extreme concentration means that while headline indices look exceptionally strong, the average stock outside the AI ecosystem is experiencing pressure.
India being a services economy has been witnessing continued outflows and we believe the strong traction towards AI stocks is nearing maturity and we should expect reversal of fortunes in the coming months.

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