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Stocks are heading into September with the Morningstar US Total Market Index up a respectable 14% for the year. After a volatile start to 2026, we’re seeing yet another run driven by technology stocks, particularly the names seen benefiting the most from the artificial intelligence buildout.
As we have been documenting, market concentration within tech has only increased this year, and not decreased as many strategists expected. This week’s Markets Brief looks at how it’s getting harder for investors to diversify away from tech. Even value funds may not be a haven. Also on tap is a deeper dive into Nvidia’s financing deals, which have some investors nervous, as well as a look at why cybersecurity stocks are turning into AI winners.
Why So Many Value ETFs Are Loaded with Big Tech
Investors turning to value-stock strategies often try to counterbalance the growth side of a portfolio heavy in volatile tech stocks. But investors in many value-stock ETFs may be making much bigger bets on tech than they realize. “We are seeing more and more stocks that people think of as large growth and tech being included in value indices and ETFs,” explains Morningstar associate manager research analyst Brian Paoli.
One example of this trend is the $84 billion iShares Russell 1000 Value ETF IWD, the fourth-largest ETF in the Morningstar large value category. These days, it has about 20% of its portfolio in technology stocks (using Morningstar sector designations), with Apple AAPL as its second-largest position and Microsoft MSFT ranking third. Meanwhile, the ETF’s largest position is a roughly 6% weighting in Amazon AMZN, which is classified as a consumer cyclical rather than a tech stock. In other words, more than a quarter of the iShares Russell 1000 Value ETF is in tech-related investments.
It wasn’t always this way. The amount of technology stocks in the iShares strategy has risen sharply over the past year and a half. At the end of 2024, tech was 11% of the fund.
At the same time, technology stocks have played a greater role in driving performance. In 2024, financials, including JPMorgan JPM and Berkshire Hathaway BRK.A, were the ETF’s top two contributors, followed by Walmart WMT and GE Aerospace GE. So far in 2026, tech stocks have been the catalyst. Out of the fund’s 23.8% year-to-date return, they have contributed 11.5 percentage points, with Amazon adding another 0.84 points. The top seven contributors to the fund’s returns in 2026 have been tech stocks, along with Amazon. (Apple clocks in at number 10.)
The iShares Russell 1000 Value ETF is far from alone. The $50 billion iShares S&P 500 Value ETF IVE clocks in at nearly 21% tech stocks, and the iShares Morningstar Value ETF
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at nearly 24%. But these don’t even crack the top 40 in terms of tech exposure among large value ETFs with more than $100 million in assets. The largest value-stock ETF, the $256 billion Vanguard Morningstar Value ETF, is at the low end, with 13% tech.
Why is Big Tech appearing in value strategies even as Apple and Microsoft have been growing earnings at an annual rate of around 20%? Paoli says the answer lies in the intersection of stock characterization methodologies and market dynamics. Value and growth designations are relative, not based on absolute numbers. Index providers (including Morningstar) evaluate stocks via different metrics and then rank them to determine the growth/value line. With some approaches, stocks with a blend of growth and value attributes end up in both value and growth indexes.
Meanwhile, the intense rally in semiconductor stocks has lifted both valuations and market caps at a time when their earnings growth has exploded. In addition, a large, fast-growing IPO like SpaceX SPCX can add to the ranks of stocks at the growth end of the spectrum. Together these factors have pushed relatively slower-growth and lower-valuation Big Tech names, such as Apple and Microsoft, to the value side.
“AI has become large enough to influence not only stock prices but also style classifications, sector composition, factor exposures, and benchmark concentration,” writes Scott Froidl, co-head of manager research at LPL Financial. “Technology now plays an increasingly important role in both growth and value indexes. The traditional boundaries separating investment styles are beginning to blur.”
Are Nvidia’s Growing Circular Financing Deals a Concern?
When is a surprise not a surprise? When Nvidia blows away earnings forecasts. But a bigger question for many investors is the company’s web of financing arrangements with clients and other financial commitments totaling hundreds of billions of dollars. These deals were a big focus during the company’s conference call. “We recognize the scale of this support, and we know some will call this circular financing. We see it differently,” said Colette Kress, Nvidia’s chief financial officer.
Brian Colello, who follows Nvidia for Morningstar, has argued that these financing arrangements are a smart strategy for the giant chipmaker. Here are four of his key takeaways from the company’s conference call:
- Nvidia’s supply chain commitments spiked in the second quarter, rising to $279 billion versus $119 billion a quarter ago, as the company procured memory chips ahead of its Vera Rubin and Vera Rubin Ultra rack-scale product rollouts in the quarters ahead. We’re not concerned with this higher level of commitments given the firm’s glowing near-term revenue forecast. The company also summarized its variety of leases, cloud service commitments, and financing guarantees (mainly its recent deal with OpenAI), reporting maximum exposure of $165 billion for deals done thus far. For context, this is less than 40% of the free cash flow we expect Nvidia to earn in fiscal 2028 from its AI hardware sales. Even if most of these deals fall through, it would make an AI bust feel a bit more painful for the company, but we think Nvidia can weather such a storm if one were to arise.
- Regarding the OpenAI deal, which is by far the biggest one, our takeaway is that OpenAI and Anthropic have simply outgrown the VC industry. In any normal scenario, VC would fund the needs of a startup. However, because both have grown so large and are in much more capital-intensive businesses, they require additional funding. This is where Nvidia has stepped in, both with its own support (the $105 billion for OpenAI) and networking to arrange financing from others—namely, the $500 billion partnerships with Apollo, KKR, etc.
- Nvidia is stressing that its AI gear is “fungible and durable.” If its main customer can no longer afford its GPUs, the firm can rent them out to others or deploy them for its own purposes. Given that we’re in the early innings of agentic and physical AI, we think this capacity will get soaked up, even in the unlikely chance that the main customer can’t use it.
- Nvidia considers its AI gear an investable asset and this financing akin to automobile financing. These GPUs may have 5-10-year lives—a little less than a car, but a bit more durable than past tech like PCs and smartphones.
Cybersecurity Stocks Riding the AI (Danger) Boom
Cybersecurity stocks were an early target of the “AI loser” trade. But over the last few months, they’ve turned into winners. CrowdStrike’s earnings report last week showed why. Morningstar equity analyst Malik Ahmed Khan says the company’s strong top-line reacceleration was “driven by increased spending on cyber solutions as enterprises beef up defenses against increasingly capable AI-driven cyber-attacks. In this arms-race-type scenario, cyber vendors are seeing clear business wins.”
Khan thinks this reflects a broader trend. Here’s what he says:
- Cyber budget expansion due to AI is real. It is showing up in actual results and forward-looking metrics.
- This is not a “quarter story.” We expect this to be a multi-year tailwind for the sector.
- We accelerated cyber software spending in 2027, above our forecast from our landscape.
- Most of the spending is accruing to platform vendors, with customers clearly seeking to buy more from less. This disproportionately benefits CrowdStrike CRWD and Palo Alto Networks PANW.
- The two undervalued names in our coverage are Okta OKTA (identity) and Zscaler ZS (network). We see upside to both names. Based on recent trends and commentary from other vendors, we expect Zscaler’s upcoming report to be strong.
- Zscaler and Palo Alto will report quarterly results next week and provide annual guidance, which we can test against our thesis.
