The Dangerous Domination of Big Tech Stocks in the US Market
By Alex Wehnert, Adapted for Modern Readers
Seven prosperous investors are now exacting their vengeance.
Is the allure of Big Tech clouding investors' judgment? The interconnectedness within this sector should prompt nominal skepticism from investors.
Many investors remain complacent about the steep concentration in the US stock market. It may not come as a surprise that seven stocks make up a third of the market capitalization of the S&P 500, but the influence on performance and potential repercussions for the overall market shouldn't be underestimated. As of early 2025, the S&P 500 has gained nearly a quarter in value, but the S&P 500 Equal Weight, where all members are allocated equally at 0.2%, has only increased by a respectable 10% in the same period. To envision the potential turbulence that the stock market could experience when the Big-Tech sector's bull run wanes, one doesn't need excessive imagination. Yet, large asset managers like Blackrock and Amundi continue to exacerbate concentration risks by launching new, heavily focused US Mega-Cap ETFs.
A startling degree of sector focus
The S&P 500 is as concentrated in one sector as it was back in the 1950s, when energy and commodity companies nearly accounted for 40% of the leading index. Today, the IT industry has a comparable weight. This should give investors additional pause, as within the Big-Tech set, there are stronger mutual dependencies than in many other industries. This is evident in the enthusiasm surrounding artificial intelligence, the main driver of the stock rally.
Nvidia's semiconductors are considered the backbone of the boom, but the chipmaker is also remarkably dependent on its biggest clients. According to technology consultancy Omdia, Microsoft placed orders for 485,000 "Hopper" series graphics processors in 2025, more than twice as many as the next largest client, Meta Platforms. Sales figures outside the Big-Tech circle are significantly lower. If one of the major clients were to withdraw, the extraordinary growth of the chip manufacturer would take a dramatic hit.
Uncertain payoffs from investment
Many fund managers who claim to actively manage portfolios but in reality closely mirror the composition of the S&P 500 or even the Nasdaq 100 may still dismiss the associated risks. After all, the tech giants still boast colossal investable cash reserves. J.P. Morgan estimates that the "Magnificent Seven" will increase their investment expenditures to a whopping $500 billion by 2025. Yet, this scattershot strategy doesn't inherently translate into higher returns for shareholders—quite the opposite, as frugal firms have historically performed better in the long run. Furthermore, it's not guaranteed that capital expenditures will yield results.
Frustrations outside the primary business
Nvidia's latest quarterly figures from November already hint at the challenges of AI's potential. The successors to the "Hopper" chips in the new "Blackwell" series are extraordinarily complex. A single faulty component can render the entire $40,000 processor worthless, significantly impacting production yields. If tech giants are increasingly forced to write off parts of their chip investments, economic realities may eventually compel them to adopt more prudent spending habits. And if Nvidia doesn't deliver on its promised performance in the near future, other business areas of Big Tech beyond data centers could come under increased scrutiny, with volatile sectors like advertising and e-commerce this time round.
A fitting disillusionment
The "Magnificent Seven" analogy may apply in an unexpected way. When the main star, Yul Brynner, left the series, the remaining parts became widely panned flops. The first film of the tetralogy without Brynner is called "The Magnificent Seven Ride Again" in German—a fate that may soon befall overly optimistic investors.
Insight:
Due to the domination of a few companies, the Big Tech sector now holds a significant impact on the performance of the entire stock market. Concentration risk, market volatility, potential earnings disappointments, and diversification challenges are the potential consequences if a Big Tech downturn occurs. In a worst-case scenario, budgets for areas beyond the data center could be reviewed, and investors ought to be wary of excessive optimism for Big Tech shares.
- The steep concentration of seven stocks in the S&P 500, including Big Tech, should not be underestimated, as they comprise a third of the market capitalization and have a substantial influence on the overall market's performance.
- In the IT industry, sector focus is as concentrated as it was in the 1950s, with technology companies sharing comparable weight to energy and commodity companies. This concentration should give investors additional reason to question their investing decisions.
- Nvidia, a key player in the tech industry, is remarkably dependent on its clients, as one major client, Microsoft, accounted for more than twice as many purchases of Nvidia's "Hopper" series graphics processors compared to the next largest client in 2025.
- The potential turbulence of the stock market could increase when the Big-Tech sector's bull run starts to wane, and big asset managers like Blackrock and Amundi continue to exacerbate concentration risks by launching new, heavily focused US Mega-Cap ETFs.
