AI‑Driven Stock Trends Spur Small‑Cap ETF Gains and Raise Productivity Growth Questions

The iShares Russell 2000 Growth ETF (IWO) has outperformed the Vanguard Growth ETF (VUG) over the past year, delivering roughly double the return. IWO holds more than 1,100 small‑cap growth stocks and is only 19.4% weighted to technology, while VUG is 69.6% tech‑heavy, concentrated in five giants – Nvidia, Apple, Alphabet, Microsoft and Broadcom – and charges a 0.03% expense ratio. Over the past decade IWO posted an 11.5% annualized return versus VUG’s 13.2% over the same period.

Analysts caution that the current enthusiasm for AI‑related equities rests on uncertain macro assumptions. To justify high valuations, overall productivity would need to rise 4‑5% per year—far above recent 1.5‑2% growth. Competition from Chinese AI firms, which can offer comparable technology at lower prices, could further limit profit gains for U.S. companies. These dynamics suggest that the AI boom’s impact on stock markets may be more modest than some investors expect.