That headline does not need a spell check. True, the letters “AI” do not appear in the ticker symbol for the SPDR S&P 500 ETF (SPY). Yet, artificial intelligence (AI) stocks dominate the index where it counts. In terms of weighting, AI stocks now comprise a whopping 51% of the S&P 500 Index ($SPX), according to recent data from JPMorgan Asset Management.
Investors who buy the S&P 500 assuming they are acquiring a broadly diversified cross-section of the American economy are in for a surprise. That’s what my chart work is showing me.
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Buying the broad market is no longer a neutral allocation across retail, manufacturing, healthcare, and finance. It is a high-beta, concentrated bet on a single technological buildout.
That worked well for a while — very well, in fact. Just look at the impact AI stocks have had on SPY since that “trade” started nearly four years ago. It went from being a trade to a way of life for many investors, including a lot of my Baby Boomer peers, who I try to alert to the downside risk of relying too much on the S&P 500. It is not what you think it is.
When we take out tech stocks, the market looks as vulnerable as SPY, or worse. This looks like the tip of the iceberg to me. Of course it could be yet another false alarm. But that JPMorgan data point is one of those things that reminds me of the dot-com bubble epitaph. “We all should have known when, blah blah blah.”
When I see the market’s headline indexes in trouble, I immediately chart the Invesco S&P 500 E.W. ETF (RSP), the equal-weighted version of the S&P 500, to see if the average stock can bail out the bulls. But here, just as with the S&P 500 Ex-Technology ETF (SPXT) above, I see a PPO indicator that just crossed into negative territory. Nothing is for certain, but markets tend to continue southbound when that occurs.
The Breakdown of the AI Monopoly
The JPMorgan Asset Management breakdown illustrates how thoroughly the AI ecosystem has consumed the index’s market cap these days:
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Semiconductors (17%): The primary engine of the hardware boom, capturing the lion’s share of infrastructure spend.
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Hyperscalers (17%): Mega-cap cloud titans, with their historically high capital expenditure budgets.
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Hardware (11%): Server, storage, and networking equipment providers enabling physical data center builds.
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Software (9%): Enterprise platforms trying to integrate and monetize AI capabilities.
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Power (2%): Utilities and grid infrastructure providers supplying electricity to energy-hungry compute clusters.
