Since the start of the Middle East conflict, oil prices have surged amid persistent supply constraints. The closure of the Strait of Hormuz and damage to critical energy infrastructure in the region have further intensified the rally, plunging global energy markets into turmoil.

Even if tensions ease, oil prices are likely to remain elevated, posing a growing concern for tech giants. Their substantial investments in artificial intelligence could face headwinds, as higher energy costs and ongoing uncertainty weigh on growth prospects.

Amid the ongoing conflict, investors have been pulling back from U.S. sectoral funds, with technology funds alone seeing net outflows of $1.45 billion in the week ending March 25, per LSEG Lipper data, as quoted on another Reuters article.

Rising Energy Costs to Add to Big Tech’s Burden

According to S&P Global, as quoted on Reuters, prior to the start of the Middle East conflict, tech giants such as Microsoft, Amazon, Alphabet and Meta had proposed to invest roughly $635 billion this year toward AI infrastructure, marking a sharp rise from about $383 billion in 2025.

Per S&P Global Visible Alpha’s head of research, Melissa ‌Otto, as quoted on the abovementioned Reuters article, sustained high oil prices could lead to revisions in the tech giants’ spending in the first half of the year, potentially resulting in a significant correction across equity markets.

Big Tech Already Showing Signs of Stress

The tech-heavy Nasdaq Composite has fallen about 8.05% over the past month and 5.51% over the past five days. The sector has been under pressure since the start of the year. Rising concerns over AI-driven disruptions and “software-mageddon” sell-off in February signaled growing fatigue around the AI trade in the market. Nasdaq has fallen 11.44% year to date.

Wall Street was already growing wary, increasingly scrutinizing Big Tech’s massive AI investments for tangible returns, with elevated capital spending weighing on tech stocks. Expectations of rising energy costs, driven by higher oil prices, could further compound the pressures facing tech giants. This combination may leave the market more vulnerable to sharper drawdowns, reinforcing the need for greater portfolio diversification.

The Case for Diversification

With the S&P 500 heavily tilted toward the information technology sector, accounting for roughly 32.4% of the index, concentration risk has become increasingly evident, as a significant portion of that exposure is clustered in a handful of tech heavyweights. As a result, investing in funds that track the S&P 500 Index could increase concentration and systemic risk for investors.

Diversification remains one of the most effective strategies for building resilient portfolios, making it essential to manage downside risk while preserving exposure to broader market opportunities.

That said, reducing exposure to technology is not the sole reason investors should diversify. Broader structural risks, including elevated recession fears and the ongoing Middle East conflict, indicating a persistent complex geopolitical landscape, reinforce the case for spreading risk across sectors, asset classes and regions.

Strategic ETF Picks for Diversification

Rising risk aversion could prompt investors to scale back exposure to U.S. technology stocks. In this environment, reducing concentration risk through diversification into ETFs focused on value sectors or equal-weighted strategies can help enhance portfolio resilience while still preserving upside potential.

These sectors provide dual benefits, protecting portfolios during market downturns and offering gains when the market rises, making them well-suited for investors targeting sustainable long-term returns.

Reducing concentration risk through ETFs not only enhances portfolio balance but also offers added benefits such as tax efficiency and a simpler, more disciplined approach to investing.

Below, we highlight a few areas in which investors can increase their exposure.

Equal-Weighted Index Funds

These funds offer sector-level diversification by assigning equal weight to each constituent stock, regardless of market capitalization, reducing concentration risk. This makes them a relevant choice for investors seeking diversified exposure across sectors within the domestic market.

Some of the funds are Invesco S&P 500 Equal Weight ETF (RSP Quick QuoteRSP - Free Report) , ALPS Equal Sector Weight ETF (EQL Quick QuoteEQL - Free Report) and Invesco S&P 100 Equal Weight ETF (EQWL Quick QuoteEQWL - Free Report) .

Value ETFs

Investors can leverage value investing, a strategy particularly compelling in today’s economic environment. Value investing through ETFs offers investors an easy and accessible way to follow this strategy. Value ETFs focus on stocks characterized by strong fundamentals and robust financial health, which trade below their intrinsic value.

Investors can consider Vanguard Value ETF (VTV Quick QuoteVTV - Free Report) ,Vanguard Small Cap Value ETF (VBR Quick QuoteVBR - Free Report) and Avantis U.S. Large Cap Value ETF (AVLV Quick QuoteAVLV - Free Report) .

Total Stock Market ETFs

Vanguard Total Stock Market ETF (VTI Quick QuoteVTI - Free Report) , iShares Core S&P Total U.S. Stock Market ETF (ITOT Quick QuoteITOT - Free Report) and Schwab U.S. Broad Market ETF (SCHB Quick QuoteSCHB - Free Report) can be considered.

Multi-Asset ETFs

Portfolio diversification also comes across as an attractive investment strategy. A well-diversified portfolio distributes risk across multiple asset classes. Multi-asset ETFs could be a solid investment.

By combining stocks and bonds, multi-asset ETFs help reduce portfolio risk. Equities offer growth potential, while bonds provide income and act as a buffer during market downturns. This diversification can enhance risk-adjusted returns over time.

iShares Core 60/40 Balanced Allocation ETF (AOR Quick QuoteAOR - Free Report) has 59.46% allocated to equities, 39.88% allocated to fixed income and 0.67% allocated to cash and/or derivatives.

iShares Core 30/70 Conservative Allocation ETF (AOK Quick QuoteAOK - Free Report) has 29.62% allocated to equities, 69.51% allocated to fixed income and 0.87% allocated to cash and/or derivatives.

Multi-Asset Diversified Income Index Fund (MDIV Quick QuoteMDIV - Free Report) has double-digit exposure to dividend-paying equities (20.92%), preferred securities (20.20%), high yield corporate bond ETFs (20.16%), REITs (18.94%) and MLPs (18.49%).