Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla now make up roughly one third of the entire index. One chip maker alone, Nvidia, is about 7 percent of the S&P 500, the same weight as the smallest two hundred plus companies combined.
Every teacher pension, every passive 401(k), every “safe” index ETF is now riding on the same handful of AI giants. When those earnings beat, everyone looks like a genius. If a single story breaks, the whole index catches the flu.
This is not just a valuation question. It is a concentration question. A market that advertises five hundred companies is giving you effective exposure to fewer than ten, while trillions in passive money keep mechanically buying more of what has already gone up.
If you hold the S&P 500, you are making three hidden bets:
- AI capex keeps compounding
- Antitrust and regulation stay toothless
- One stock’s stumble will not freeze global risk appetite
If any of those fail, diversification will turn out to have been an illusion.