Nvidia and Apple command unprecedented share of S&P 500 as tech sell-off deepens
Rising Treasury yields and inflation data have triggered a sharp correction in technology shares, exposing the fragility of an index dominated by artificial intelligence optimism.
The S&P 500 has reached a historic level of concentration, with Nvidia and Apple now accounting for more than 15 per cent of the index. This combined weighting represents the highest concentration in two stocks ever recorded, surpassing the dominance seen during the dot-com bubble when Microsoft and General Electric led the market. Charlie Bilello, chief markets strategist at Creative Planning, highlighted the unprecedented nature of this shift in a recent chart, noting that the current market structure is heavily reliant on the performance of these two technology giants.
Investor enthusiasm for these shares is largely driven by optimism surrounding artificial intelligence. For Nvidia, this sentiment is anchored in sustained demand for its AI chips, while Apple’s valuation reflects hopes that incoming chief executive John Ternus will successfully execute on various AI initiatives. This belief in the future power of AI has propelled tech stocks to elevated valuations, making them highly sensitive to changes in interest rates and Treasury yields, which are used to discount projected future earnings.
However, this momentum faced a significant reversal in mid-May as a wave of profit-taking swept through the sector. The catalyst was an April Consumer Price Index report that revealed annual inflation had surged to 3.8 per cent. This upside surprise in inflation data was heavily influenced by oil price spikes linked to the ongoing conflict in Iran, which derailed Wall Street’s expectations for near-term interest rate cuts.
The inflation data triggered a swift sell-off in government debt, pushing the 10-year Treasury yield to a 12-month high of 4.61 per cent. Consequently, market discourse has shifted from expectations of rate cuts to discussions of possible interest rate hikes. As yields rise, high-growth technology valuations have been compressed, forcing institutional investors to de-risk their portfolios ahead of crucial megacap earnings reports.
The correction has been particularly acute in high-flying names, with significant sell-offs recorded in shares such as Micron and Sandisk. While the broader market benefits from the financial potential AI brings to the table, the outsized concentration in the technology sector means it is vulnerable to unwinding periods. The current rise in Treasury yields may serve as a moment for Wall Street to reassess the tech trade with greater scrutiny.
