Rob Arnott warns investors are paying far too much for tech heavyweights As investors increasingly scrutinize spending by artificial intelligence-related companies, many still want exposure to the big names that they hope will keep driving that new technology. History shows those bets won’t hold up, according to Rob Arnott, founder of Research Affiliates and chairman of Syzygy Asset Management, which manages $32 billion. The rest underperformed the S&P 500.
Four of them don’t even exist anymore, two more had a negative cumulative return over the last quarter-century, a negative return and then the rest had a modest positive return,” he told The Intangible Economy With Kai Wu podcastin an interview that was released Wednesday. Every such revolution is accompanied by a bubble, but markets mistakenly view those leaders as staying dominant through protective moats, he said. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it.
I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. While markets are pricing in what they think will be the enduring AI winners, every big technological revolution “requires that the customers win more than the innovators.” So AI users using the technology to work more efficiently become more valuable to them than the actual innovators, he said.
For example, Ralph Lauren created an interactive fashion-advice app called Ask Ralph that absorbed every interview the fashion mogul had ever given. Rather than a revolutionary AI company, the company has figured out how to use the technology to sell more products. Investors who own the S&P 500 are disproportionately exposed to those perceived AI winners, even as those companies have also gotten more expensive to own.
A study he co-wrote showed that, in the past decade, the top 500 companies massively outperformed the next smaller 500 — the midcaps — but because of rising profits, not due to weak growth for the latter. In 2014, those top 500 companies could be picked up 15% cheaper than the group of midcaps, but the reversal in the decade since has been stark, with investors paying 80% more to own them. He said one of two things has to happen next: Either profits of the top 500 need to surge well past those of smaller companies or their stock prices have to get cheaper.
Arnott pointed out that the distance between valuations of U.S. large-cap growth stocks and small-cap value stocks is at an extreme not seen even during the dot-com bubble. The Russell 2000 is up about 12% so far in 2026, while the S&P 500 is up 13%. Outperformance of 6% to 8% per year for the coming decade would be needed “just to get things remotely back in line.
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