Only 20 stocks have led most of the S&P 500’s returns
Just 20 firms — mostly AI-related stocks — are supporting the S&P 500, driving it into positive territory, signaling rising risk in the market.
Above graphic from Truman You shows which stocks account for the vast majority of S&P 500 returns amid AI market euphoria and broader market headwinds.
Big Tech Stock Rally
Tech and AI stocks have surged as ChatGPT became a household name in 2023.
The table below shows data from last month highlighting that only a small collection of companies drove most of the action on the US benchmark index.
| Company rank | Name | Contribution to S&P 500 Return | Average weight |
|---|---|---|---|
| 1 | Apple | 1.49% | 6.61% |
| 2 | Microsoft | 1.15% | 5.72% |
| 3 | NVIDIA | 1.00% | 1.62% |
| 4 | Meta | 0.66% | 1.15% |
| 5 | Amazon | 0.51% | 2.56% |
| 6 | Tesla | 0.50% | 1.39% |
| 7 | Alphabet (Class A Shares) | 0.34% | 1.72% |
| 8 | Alphabet (Class C Shares) | 0.31% | 1.53% |
| 9 | Sales force | 0.19% | 0.51% |
| 10 | Advanced micro-devices | 0.16% | 0.39% |
| 11 | General Electric | 0.10% | 0.28% |
| 12 | Visa | 0.10% | 1.08% |
| 13 | Broadcom | 0.09% | 0.73% |
| 14 | Intel | 0.09% | 0.35% |
| 15 | Walt Disney | 0.08% | 0.55% |
| 16 | Booking Stocks | 0.07% | 0.28% |
| 17 | Exxon Mobil | 0.06% | 1.37% |
| 18 | Netflix | 0.06% | 0.44% |
| 19 | Oracle | 0.06% | 0.40% |
| 20 | Adobe | 0.06% | 0.49% |
| Top 20 companies | 7.05% | 29.17% | |
| S&P 500* | 7.55% | 100.00% |
*Based on Vanguard S&P 500 ETF per April 11, 2023. Source: Vanguard S&P500 ETF, Bloomberg.
Microsoft invested $10 billion in OpenAI, the creators of ChatGPT. It has also integrated generative AI into its Bing search engine. This large language model is designed specifically to speed up search capabilities, generate text, and perform other automations.
Also of interest is NVIDIA, which is the most valuable chipmaker in America. It sells $10,000 chips called A100s that allow machine learning models to run. These models perform multiple tasks simultaneously to develop neural networks and train AI systems, including OpenAI’s ChatGPT. Companies developing AI-related services, such as chatbots or image generation, can use up to thousands of these chips.
Despite being the world’s most valuable company and a key driver of returns, Apple is an outlier among tech giants with no major projects announced in AI (so far).
Implications of Market Divergence
The problem with the strong gains seen in a select few AI-related stocks is that it clouds broader stock market performance.
Without the AI-led rally, the S&P 500 would bounce back -1.4%. per 17 May 2023.
4. AI fuels the stock market
A handful of stocks are leading the S&P 500’s impressive 9% gain this year.
Here’s the kicker: If you excluded AI stocks, the S&P 500 would fall over 1% (according to Societe Generale). pic.twitter.com/SME1mJVpoW
— Rowan Cheung (@rowancheung) 22 May 2023
This kind of steep divergence, known as the breadth of the marketoften signals higher risk in the market.
When more companies experience positive returns, it is less risky than a small handful that see the majority of the gains. Today, the market width is very narrow, and these companies make up over 29% of the entire market value of the index.
How long AI-related firms hide the broader performance of the S&P 500 remains to be seen. A growing number of market pressures, from higher interest rates to banking uncertainty, may add further challenges.
