An overly concentrated market may be a bad thing for the S&P 500 (^GSPC) if earnings this week from Microsoft (MSFT), Amazon (AMZN), and Meta (META) reveal major increases in AI capital expenditures that show no signs of slowing anytime soon.
Quick insight: Investing in the S&P 500 has become investing in artificial intelligence, as 10 stocks account for a record 38% of the index, up from the 27% peak hit during the dot-com boom (see chart below).
“Risks have risen significantly with rising index concentration as outsized gains have accrued to only a handful of names,” Evercore ISI strategist Julian Emanuel wrote in a new note.
Why it matters: The market didn’t view Alphabet’s second quarter capex numbers favorably when it reported last week.
Alphabet’s second quarter capital expenditures came in at $44.9 billion, slightly above Wall Street forecasts of $44.7 billion. Full-year capex guidance was raised to $195 billion to $205 billion from $180 billion to $190 billion, with a “significant” increase seen for 2027, executives said on the earnings call.
Shares of Alphabet are down 9% over the past five sessions. The stock finished last week below the key 200-day moving average, per Yahoo Finance AlphaSpace data.
This comes as investors worry that the AI spending boom may be cooling.
It’s also worth noting that the low-cost Kimi K3 model by China’s Moonshot AI is being compared to the DeepSeek model release circa early 2025. These new Chinese models are calling into question whether US tech companies are overspending on AI.
“AI capex enthusiasm is beginning to cool,” strategists at Barclays warned in a new note.
The bottom line: It’s reasonable to expect Microsoft, Meta, and Amazon to report eye-popping capex increases this week for the second quarter. It’s also reasonable to expect strong capex guidance from all three.
The question is whether the market has grown comfortable with what they are about to hear in the wake of the Alphabet sell-off. If they haven’t, expect the overly concentrated S&P 500 to get drilled and money to flow into other sectors, such as healthcare and the financials.
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the ‘Power Players With Brian Sozzi’ podcast and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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