The benchmark S&P 500 is considered highly diversified, but its performance is increasingly dependent on a handful of technology companies.
gave S&P 500 (^GSPC 0.02%) Contains 500 stocks from 11 different sectors including information technology, energy, finance and real estate. Although it is the most diversified of the major US stock market indexes, some select technology stocks are increasingly influencing its performance.
As of this writing, the following five companies have a combined market capitalization of $12.5 trillion, accounting for 27.3% of the total value of the entire S&P 500:
- Microsoft (MSFT 0.04%) The market cap is $3.2 trillion.
- apple (AAPL 0.01%) The market cap is $2.9 trillion.
- Nvidia (NVDA 6.98%) It has a market cap of $2.8 trillion.
- the alphabet (GOOG 0.96%) (GOOGL 0.81%) The market cap is $2.2 trillion.
- Amazon (AMZN 0.78%) It has a market cap of $1.9 trillion.
The S&P 500 index is up 11.5% so far in 2024. However, K S&P 500 Equal Weight Index — which assigns equal weight to each stock regardless of its market cap — is up just 4.9%. The difference can be explained (in large part) by the average year-to-date gain of 26.3% in the above five stocks, which highlights their impact on the performance of the S&P 500.
Each of the five companies has a track record of success spanning decades, and is using that experience (and its vast financial resources) to dominate new industries like artificial intelligence (AI). If they succeed, they could become more influential than the S&P 500.
1. Microsoft: 7.2% of the S&P 500
Microsoft is the largest company in the world. It was founded in 1975, and some of its key products such as Windows and Word are still used by billions of people today. Microsoft has expanded beyond software and into gaming, hardware (computers and devices), internet search, cloud computing, and now, AI.
In early 2023, the company agreed to invest $10 billion in AI startup OpenAI, which created the ChatGPT online chatbot. Microsoft is integrating OpenAI's technology into many of its products to provide greater value to consumers. For example, the Bing search engine now has a chatbot interface, and applications like Word, PowerPoint, and Excel are taking advantage of AI's ability to quickly generate content from text to videos.
Microsoft has established itself as a leader in AI thanks to its OpenAI partnership, and its products will continue to benefit from the startup's lightning-fast innovation.
2. Apple: 6.2% of the S&P 500
Apple makes the world's most popular consumer electronics with 2.2 billion active devices worldwide. This includes the flagship iPhone, iPad and Mac line of computers. The iPhone also led to successful, billion-dollar spin-off devices such as the Watch and AirPods wireless headphones.
Apple's huge install base makes it the best distributor of AI software for consumers. The latest iPhone 15 Pro already comes with an Apple-designed A17 Pro chip, which is designed to process some AI workloads on the device. The company is reportedly in talks with OpenAI and Alphabet to decide which AI models will power its future devices, so consumers should expect more of its next chips processing. Will come with abilities.
Eventually, devices like the iPhone could come with advanced AI assistants capable of answering complex questions and generating emails and social media content (among other things). Modern smartphones are simply pocket-sized computers, and, in general, they have made humanity much more productive. AI is poised to accelerate this trend.
3. Nvidia: 5.9% of the S&P 500
Generative AI is developed, trained and deployed in large, centralized data centers. Nvidia designs the graphics processing chips (GPUs) that populate these data centers, and they are among the most sought-after in the industry among AI developers. During fiscal 2024 (ended January 28), Nvidia's H100 GPU drove the company's data center revenue to $47.5 billion, a whopping 217% year-over-year growth.
The company just reported financial results for the first quarter of fiscal 2025 (ended April 28), and its data center revenue growth. fast Up to 427 percent. H100 sales increased, but shipments of the new H200 GPU are scheduled to begin in Q2. It can infer (the process of feeding live data to an AI model so it can make predictions) twice as fast as the H100, using half the energy, which is one of the leading data center operators such as Microsoft, Amazon, etc. And can trigger a wave of demand. And Google.
In essence, Nvidia is way ahead of its competitors, and the development of next-generation AI models would not be possible without its GPUs. The company plans to launch a new series of chips later this year that are built on its latest Blackwell architecture, and will offer even higher performance.
4. Alphabet: 4.3% of the S&P 500
Alphabet is the parent company of Google, and is also home to other tech subsidiaries such as YouTube, autonomous driving company Waymo, and AI developer DeepMind. Google search is still Alphabet's biggest source of revenue, but investors have questioned whether AI chatbots can end its dominance given their ability to answer virtually any question instantly. are
Data is king when it comes to AI, and since Google Search has been the window to the entire Internet for more than two decades, it holds more valuable information than virtually any company on Earth. This allowed Alphabet to develop its own AI models, culminating in its latest Gemini lineup, designed to compete with OpenAI's GPT-4 models. In some tests, Gemini is just as good, if not better, at understanding and generating text, images, videos, and computer code.
Google also embedded generative AI into its traditional search engine, which provides a text-based answer at the top of the page to save the user from sifting through web results to find the information they need. Alphabet's AI initiatives are resonating with investors, who have added the company to the exclusive $2 trillion club this year.
5. Amazon: 3.7% of the S&P 500
Amazon is best known as an e-commerce company, and online sales are its biggest source of revenue. But the company has branched out into streaming, digital advertising, robotics, and cloud computing (among other things), which has contributed to the company's position on the list. In fact, its cloud platform, Amazon Web Services (AWS), is the largest in the industry, and is home to a growing number of AI services.
Amazon CEO Andy Jessee wants AWSAI to dominate the three layers. There is an infrastructure layer, a model layer, and an application layer. To achieve this, the company now designs its own AI chips for the data center, offering a growing portfolio of ready-made large language models (LLMs), some of which it developed in-house. And it recently launched Q, a generative AI assistant that can help businesses extract more value from the AWS platform.
Amazon also uses AI in its core e-commerce platform to recommend products to customers and help advertisers create engaging content. Simply put, this is one of the most diverse companies an investor can own during the AI ​​revolution.