The witching hour. Is this about All Hallow’s Eve? No, it’s about tech companies — AI-focused in particular. Promise, hype, and intra-sector cross-investment has created an interesting dynamic of economic concentration and risk.
By no means is this to say that tech companies and their stocks are bad. It also isn’t to say they will be good at all times and past performance is a guarantee of future returns.
Heavyweight Tech
Technology stocks have shown strong returns, as they have in 2023 and 2024, according to U.S. Bank. The information technology sector gained 23% year-to-date on October 21, 2025. The tech-focused communication services sector gained 25%. In contrast, the S&P 500 increased by 15% and the return for the Nasdaq composite was 19%.
More specifically, the so-called Magnificent Seven — Apple, Amazon, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla — comprise 36.6% of the S&P 500 as of October 2025, up from 12.3% in 2015, according to The Motley Fool. In year-to-date performance, the Magnificent Seven had returns of 18.6% compared to 14.5% of the S&P 500. A big reason is due to artificial intelligence growth.
Stanford University’s Human-Centered Artificial Intelligence group calculated that corporate AI investment reached $252.3 billion in 2024. Year-over-year private investment was up 44.5% and mergers and acquisitions, up 12.1%.
AI/Tech Risk Rises
The current AI and tech success, though, creates some structural issues.
“The S&P 500 is built on a ‘survivor bias’ basis, with companies having the most success making up the largest weightings,” Vince Stanzione, former currency trader and CEO of financial publisher First Information, says. The higher the market capitalization of the company, the higher its standing in the S&P 500.
Stanzione compared two S&P 500-related exchange-traded funds: the Invesco S&P 500 Equal Weight EFT (RSP) and SPDR S&P 500 (SPY). “If you compare the equal-weighted RSP to SPY, you will see the equal-weighted is doing poorly, only up around 8% [year-to-date] compared to 17%.” The reason RSP did better is that it includes larger shares of top technology stocks.
“It is somewhat worrying to have such high exposure in the S&P 500, and at some stage the sector will correct,” he adds. “For my own trading and clients, we have also had large exposure to mining stocks — which are hardly represented in the SPY — and, even after the recent pullback, this is up 113% YTD and on a far lower [price-earnings ratio] multiple than tech stocks, so there are still opportunities in other sectors. But for those just passively tracking the S&P 500, they remain tech-heavy and will keep dancing until the music stops.”
The Potential Weakness Of Tech
The market excitement over AI is fueled by investor belief on its future. But the concentration of tech acts in a way like leverage in investing. The expectations can pile on atop the other. An example The Motley Fool gave was Nvidia. Since the end of 2015, the company has added trillions to its market cap, moving from the smallest contributor to the Magnificent Seven to the largest. That was a jump from 0.8% of the combined value to the largest at 21.2%.
If you have ever seen a juggler balancing a spinning plate on a pole, then you know the plates must keep rotating to maintain their stability.
“The current market continues to consolidate with outperformance limited to fewer and fewer stocks, mostly based on the promise of AI and, perhaps more compelling, spending on AI infrastructure,” says Geoff Strotman of investment consulting firm Segal Marco Advisors. “Many of these stocks happen to be the largest stocks in the US stock market (and the largest in history), which is quickly driving performance and valuations higher.”
Other Choices
Strotman notes that while the S&P 500 is at “historically high valuation,” there are many other areas of the global stock market — US small caps and non-US stocks — that remain at average valuations. That can mean good returns with lower investment amounts. He adds that emerging markets are having a strong year, up almost 30% year-to-date.
“The emerging markets outperformance is also a reminder for institutional investors to remain diversified and rebalance into underperforming asset classes in order to take advantage of return divergence and opportunities as Emerging Markets was just about left for dead at the beginning of the year,” Strotman says.
However, concerns about risk from tech, or any other type of stock type, can create its own problems.
“The debate over whether AI is a ‘boom’ or a ‘bubble’ is interesting, but in reality, it’s a distraction to everyday investors focused on long-term wealth,” says Alex Michalka, head of investments at Weatlthfront. “No one can know the answer for sure, and attempting to adjust your strategy based on a guess is a form of market timing, which historically is not a wise approach. Instead, you’re better off focusing on ensuring you have a well-diversified portfolio that includes the level of risk you’re comfortable with based on your situation and time horizon.”
In other words, if technology is an area where you find heightened risk, you don’t need to run away from it. A diversified portfolio is an intelligent investment tool. Michalka mentioned direct indexing, in which you buy individual stocks to imitate an existing stock index like the S&P 500 or Nasdaq. You can look for areas of tech that gives some of the upside without being married to it.