If you’re invested in a broad market index fund and think you’re diversified, here’s a reality check. The information technology sector now accounts for 38.33% of the MSCI USA Index and a staggering 44% of the MSCI Emerging Markets Index as of mid-2026.

How we got here

Back in 2018, IT represented roughly 26.7% of the MSCI EM Index. By May 2026, that figure had ballooned to somewhere in the 35-40% range before pushing to 44%.

The primary catalyst is artificial intelligence. The insatiable demand for AI infrastructure, from training clusters to inference chips, has turned semiconductor companies into the load-bearing walls of global equity markets. NVIDIA, Taiwan Semiconductor Manufacturing Co. (TSMC), and Samsung Electronics have been the biggest beneficiaries, and their market capitalizations have dragged entire national weightings upward.

Taiwan’s weight in the MSCI EM Index rose by 0.30 percentage points to 23.76%, effective May 29, 2026, according to the latest quarterly index review. South Korea, along with Taiwan, accounts for approximately 44% of the entire MSCI EM Index through their tech and semiconductor holdings alone.

The concentration problem nobody wants to talk about

Analysts from State Street and Schroders have noted that the IT sector accounts for roughly 40% of recent index performance. If tech stocks have a bad quarter, the index has a bad quarter. There’s no amount of financial or healthcare stock performance that can offset a meaningful tech drawdown when one sector commands this much weight.

The emerging markets side is arguably more concerning. Investors who buy EM index funds typically do so for exposure to a growth story that spans China, India, Brazil, Southeast Asia, and dozens of other economies. What they’re actually getting is a semiconductor trade dressed up in geographic diversity clothing.

What this means for investors

Geopolitical tensions around Taiwan remain a persistent overhang, and any escalation could send shockwaves through indices that have become deeply dependent on Taiwanese chipmakers.

Companies like NVIDIA and TSMC have been rewarded handsomely for their AI exposure, and their index weights reflect that premium. If AI revenue growth slows, or if the capital expenditure cycle from hyperscalers moderates, these stocks could reprice quickly. Given their outsized index representation, the impact would be felt broadly.

Investors should be examining their actual sector exposure, not just their fund labels. An “emerging markets” allocation that’s 44% IT is a fundamentally different risk profile than what the name suggests. Rebalancing toward equal-weight strategies, sector-capped indices, or explicit geographic diversification could help mitigate the concentration risk that standard market-cap-weighted benchmarks now carry.