Big Tech Stocks Have Become Wall Street’s “Achilles’ Heel”
The weighted performance of this small group versus the rest of the index is nearing the peaks reached in the early 2000s.
Quick overview
- The weighted performance of AI-driven stocks is nearing levels last seen during the dot-com era, raising concerns about a potential market bubble.
- While 83% of S&P 500 companies have exceeded earnings expectations, there are signs that upward revisions are slowing, particularly among major tech firms.
- The market's heavy reliance on a few dominant tech stocks makes it vulnerable to disruptions, especially as key companies prepare to report quarterly results.
- Some analysts suggest that while there are signs of excess, valuations do not yet indicate a bubble, advocating for diversification within the AI sector.
The weighted performance of AI-driven stocks is approaching levels last seen in the early 2000s. Is this the beginning of a bubble?
The ten largest stocks in the S&P 500, led by tech giants focused on artificial intelligence (AI), have regained a level of market dominance not seen since the dot-com era—a sign of strength, but also a potential Achilles’ heel.
According to a new report from RBC Capital Markets, the weighted performance of this small group versus the rest of the index is nearing the peaks reached in the early 2000s, highlighting how heavily the market’s momentum depends on just a handful of massive tech corporations.
AI Stocks Dominate Wall Street
That concentration is both Wall Street’s greatest strength and its biggest weakness. While 83% of S&P 500 companies have beaten earnings expectations so far this quarter, RBC’s Lori Calvasina warns that upward revisions are slowing—even among the tech heavyweights that fueled 2025’s rally.
“It will be difficult to repeat the same level of earnings optimism that drove the market’s climb,” Calvasina cautioned, noting that another slowdown could trigger a broad pullback.
Such overconcentrated leadership leaves the market exposed: a stumble by just one or two of the so-called Magnificent Seven could disrupt the entire rally. That vulnerability will be put to the test this week, when Microsoft, Alphabet, Meta, Amazon, and Apple report their quarterly results.
These reports will determine whether Big Tech’s fundamentals can sustain the AI-driven enthusiasm—or if the market is entering speculative territory.
Not All Is Lost
Still, not everyone sees a bubble forming. Drew Pettit, a strategist at Citi, argues that valuations “don’t yet look like a bubble,” though he acknowledges signs of excess in certain niches.
For that reason, he recommends maintaining exposure to the AI ecosystem, but diversifying across the value chain and focusing on companies with sustainable growth and justified valuations.
Meanwhile, major investors are beginning to rotate their portfolios—reducing exposure to Nvidia and Microsoft to reinvest in emerging areas such as robotics, software, and Asian technology.
The result is a market oscillating between euphoria over AI and fear that its own success could expose its weakest point.
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