The 10 largest companies now account for about 40% of the S&P 500, up from about 28% in October 2022. An AI-fueled bull market has pushed the index near record highs. The shift leaves more of the market’s weight in a handful of corporate giants, and investors face greater exposure if the AI trade falters.
Since its closing low on Oct. 12, 2022, the index has gained 117%. It traded near records on Oct. 9, three days before the fourth anniversary of that low. According to Ryan Detrick, chief market strategist at Carson Group, the run ranks as the eighth-longest bull market since World War Two and the sixth-best-performing.
A market run built around giants
AI has driven the rally since ChatGPT launched about a month after the bull market began. S&P 500 earnings are expected to rise more than 35% this year, helped by capital spending from hyperscalers building data centers. Oxford Economics estimates that about one-third of recent U.S. economic growth stems from AI, including direct investment in AI infrastructure and stock-market gains that lift consumer spending.
“You're seeing that AI theme show up in the economy and in corporate profits,” said Anthony Saglimbene, chief market strategist at Ameriprise. The gains aren’t spread evenly across the index. Only two of its 11 sectors, technology and communication services, have outperformed the S&P 500 during the bull run. Those sectors include megacap AI companies Alphabet and Meta Platforms.
Nvidia’s market capitalization has surged to $5.8 trillion from $286 billion on Oct. 12, 2022. It is now the world’s largest company by market value. Thirteen U.S. companies are valued at least $1 trillion; all but two are either in technology or have significant AI exposure.
The biggest firms carry growing weight, bringing risks along with their earnings strength. “It is a reflection of fundamental strength and earnings outperformance, but also it introduces some risks,” said Angelo Kourkafas, senior global investment strategist at Edward Jones. “The risk of concentration is that if the prevailing theme goes out of favor, portfolios might feel it in an outsized way.”
Saglimbene called AI “the defining feature of this bull market” and said “the easy money around AI has been made.” He said technology companies face more pressure to show that today’s spending will translate into profits. The source describes no grassroots organizing or mutual-aid response to the rally; its named responses come from market strategists and investors.
Who gets the earnings, and who carries the risk
Analysts expect S&P 500 earnings to rise about 31% year over year in the third quarter. Two-thirds of that increase will come from technology and AI-heavyweights Alphabet, Amazon.com and Meta Platforms, according to Tajinder Dhillon, LSEG's head of earnings and equity research. Technology stocks helped the index reach a record high during the week before earnings season, which was expected to unofficially begin the following week with results from JPMorgan Chase and Goldman Sachs.
“It's all AI and, to a lesser extent, energy and materials, but that's because of geopolitics,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute. He said it wouldn’t surprise him if “70-80% of the growth can be attributed to tech and AI.” Energy earnings are expected to rise about 115% from a year earlier, while U.S. oil prices surged roughly 30% in the third quarter amid the ongoing U.S.-Israeli war with Iran. Consumer staples and real estate, sectors not related to AI, had among the weakest third-quarter earnings growth estimates.
S&P 500 earnings grew nearly 54% year over year in the second quarter, the highest rate since 2021, LSEG data showed. Excluding mark-to-market gains at Alphabet and Amazon.com on AI-related investments, growth was about 35%, still the highest since 2021. Analysts aren’t sure whether third-quarter growth will exceed that result. Most companies are expected to beat estimates again.
Rates, elections and the next hurdle
The Federal Reserve has pivoted to rate hikes as it seeks to bring down high inflation. Tighter policy could slow the economy, perhaps severely; the bear market before the October 2022 low coincided with a sharp rate-hiking cycle. The 10-year Treasury yield was around 5.2% after recently reaching its highest level in 24 years, creating competition for stocks. Markets could also turn volatile ahead of next month's U.S. midterm elections, and weakness in AI could be punished sharply. The article identifies electoral volatility, not an election-based remedy for concentrated market power.
Kourkafas said Edward Jones remains overweight equities, but less aggressively as fixed income becomes more attractive. “It makes sense to us to take some of the risk off the table,” he said. Mark Hackett, chief market strategist for Nationwide, said, “They don't end of old age; they end from disease.”
Earnings growth estimates are cooling. U.S. semiconductor companies’ third-quarter earnings are expected to rise about 136%, compared with about 158% in the second quarter, Dhillon said, citing LSEG data. “We're still going 100 miles an hour in the AI infrastructure buildout, but three months ago we were going 150 miles an hour,” said Nick Raich, CEO of the Earnings Scout, an independent research firm. Micron Technology forecast quarterly revenue above estimates last month and said customers had increased commitments under long-term supply agreements to $32 billion. Heavy borrowers such as utilities face risks from higher interest rates, Samana said. The rally’s next test is whether enormous spending by the biggest firms keeps delivering the profits investors expect.