Editor’s Note: Today’s article makes a case most investors haven’t considered — that “diversification” across a dozen funds may just be 12 different positions in Nvidia. For a contrarian look at where the NEXT AI winners actually are — outside the chipmakers and hyperscalers — see Jim Pearce’s AI Margin Rotation briefing →

You probably own Nvidia (NSDQ: NVDA). So do your co-workers. And mine. And just about every other investor with a 401(K) account.

Try to find a single domestic large-cap mutual fund or ETF that doesn’t have a sizeable portfolio weighting in Nvidia… it’s a real challenge.

Millions of workers deposit a sliver of each paycheck into the T. Rowe Price Blue Chip Growth Fund, which currently has $64 billion in assets. Well, 15 cents of every dollar is funneled into Nvidia – it’s the fund’s single largest holding.

Nvidia also occupies the top spot in the Vanguard Wellington portfolio. And it gets top billing at the Fidelity Capital Appreciation Fund. It’s the second biggest holding in American Funds’ Growth Fund of America.

Of course, it’s not just Nvidia. Indirectly, just about every investor also has a stake in Apple (NSDQ: AAPL), Amazon.com (NSDQ: AMZN) and the rest of the “Magnificent Seven.”

Collectively, this group represents about one-third (32.5%) of the market capitalization in the S&P 500. So naturally, these stocks will be prominent fixtures in every S&P index hugger. But just about every active fund manager competing against this benchmark also holds most (if not all) of these names.

So your portfolio might include an assortment of a dozen different large-cap funds. Check the top holdings of each. I’m betting you have 12 different positions in Nvidia, Apple and Amazon — you’re probably not as diversified as you thought.

I know what you might be thinking. That’s just the growth sleeve of my portfolio; it’s counterbalanced by dividend-paying value stocks.

Get ready for a surprise… despite well-defined objectives, value funds often fish in the same waters.

T. Rowe Price Equity Income has made Amazon its largest holding. Putnam U.S. Large Cap Value prefers Apple. Who gets the nod at Fidelity Dividend Growth? You guessed it. Nvidia (at a whopping 9% of assets). Nevermind the fact that Nvidia has a microscopic yield of 0.5%.

It’s not uncommon for fund managers to stray outside their normal universe to chase trends or otherwise try to boost returns – we refer to this practice as “style drift”. But now, the dividing lines between various style boxes have blurred.

… which brings us to the heart of today’s article.

Years ago, Warren Buffett said that “growth and value are joined at the hip.” After all, the intrinsic value of a business is calculated (in large part) by the future growth of its operating cash flows. So it’s possible for some stocks to exhibit characteristics of both camps.

That’s truer today than ever. Perhaps that’s why the Russell 1000 Value Index has just undergone a complete makeover and is now almost unrecognizable.

As the most popular barometer for large-cap dividend stocks, there is approximately $250 billion in assets that track the Russell 1000 Value. Incidentally, this is also the yardstick against which I measure the performance of my High-Yield Investing newsletter portfolio.

We tend to think of the major U.S. stock market indexes as permanent and unchanging over the decades. The financial equivalent of Mount Rushmore. But unlike that famous monument chiseled into the South Dakota hills, the corporate icons enshrined in these clubs aren’t exactly set in stone.

Small caps graduate to mid-cap territory. Tickers are lost to merger & acquisition activity. Businesses fall by the wayside and get swapped out with a replacement more in-step with the current economy.

The Dow Jones shoved AT&T (NYSE: T) aside to make room for Apple. Caesar’s Entertainment was bumped from the S&P 500 in favor of Robinhood (NSDQ: HOOD). It happens.

But the recent shakeup in the Russell 1000 Value goes much deeper.

If you looked at the iShares Russell 1000 Value ETF (NYSE: IWD) a year ago, you’d see familiar names like Berkshire Hathaway (NYSE: BRK-B), JP Morgan (NYSE: JPM) and Exxon Mobil (NYSE: XOM) occupying the top-3 spots. Combined, they represented approximately 8% of assets.

Today, they have all been demoted and replaced by Amazon, Apple, and Microsoft, respectively. And the new replacements represent about 16% of assets – meaning the index is suddenly twice as top-heavy.

With the latest reconstitution (which took effect June 26), tech sector weighting has just doubled from 10% to 20%.

You would expect to find the Magnificent 7 residing in the Russell 1000 Growth Index. In fact, they represent about 52% of the market cap – more than the other 993 members combined.

But now, these highfliers are classified as both growth and value (to varying degrees as calculated by Russell). For instance, using metrics like book-to-price ratio and sales-per-share growth, Amazon is rated as 92% value and 8% growth. Apple scores 46% value and 54% growth.

To be sure, as these businesses (some of which were once deemed 100% growth) mature and become less expensive by traditional standards, there is an argument to be made that they are walking and talking more like value stocks.

But those with ample tech exposure counting on value allocations to provide some balance might find that passive strategies aren’t the solution anymore.

The challenge Nathan identifies above — that passive “diversification” may no longer deliver the balance investors expect — points to an active opportunity most portfolios are missing entirely. Our colleague Jim Pearce at Personal Finance has been writing about exactly this rotation all year: as capital concentrates in the AI builders, the better risk/reward is quietly shifting toward traditional businesses using AI to widen their own margins. The chipmakers and hyperscalers are now embedded in virtually every benchmark and fund. The companies deploying AI as a cost tool are not — at least not yet. See Jim Pearce’s AI Margin Rotation briefing →