Okay, folks, let's talk about something really interesting happening in the markets right now, something that has the potential to reshape our entire economic landscape. We're seeing headlines about the S&P 500 soaring, up over 12% already this year, and it's all thanks to the "Magnificent 7"—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. These tech titans are driving the bus, no question about it. But what about the other 493 companies in the S&P 500? Are they just along for the ride, or are they telling a different story altogether?
The narrative being pushed is that the so-called "S&P 493" – mostly smaller, less tech-focused companies – are struggling. Sales slowdowns, investment pullbacks… it paints a picture of an economy where only a handful of giants are thriving while everyone else is left in the dust. One-third of the entire S&P 500 index is concentrated in those seven corporations, which is just wild to think about. We're even seeing the tech-heavy Nasdaq take a hit, down 7% from last month's peak, and whispers of an AI bubble are getting louder. Michael Burry, of "The Big Short" fame, is even out there saying the AI industry is exaggerating its long-term profitability.
But I think that's a dangerously simplistic view, don't you? It's like saying the invention of the printing press only benefited Gutenberg and his immediate circle. The printing press changed everything, even for those who weren't directly involved in printing books. The same is true here. The "Magnificent 7" aren't just benefiting themselves; they're paving the way for a new wave of innovation that will eventually lift all boats.
Think about it: Nvidia's stock is up over 1,000% in two years. One thousand percent! And it’s not just Nvidia. Palantir, Micron, Vertiv – they're all posting big gains. This isn't just about a few companies getting lucky; it's about a fundamental shift in how we create value. This isn't just about coding; it's about the infrastructure that enables the creation of that code.
Now, I know what some of you are thinking: "But Dr. Thorne, what about the Russell 2000? Small and mid-cap stocks are down 4.5%!" And you're right, that's a valid concern. Mark Zandi at Moody’s Analytics points out that while AI is a tailwind, deglobalization and tariffs are headwinds, especially for smaller companies. They don't have the resources to absorb higher import costs or shift their supply chains as easily as the big guys. Plus, they're more vulnerable to interest rate swings because they rely on debt for working capital. But, here's the thing: this isn't a permanent situation.
This is a transition. It's a period of adjustment as the economy adapts to a new reality, and I believe that those smaller companies are going to find ways to adapt. They have to. Human ingenuity is a powerful force, and I'm betting on it every single time. We’re seeing it already. Investors are pulling money from small caps and flocking to large caps that benefit from global AI demand, but that doesn’t mean small caps are dead. It means they’re being reborn.
Torsten Slok, chief economist at Apollo, even said that the S&P 500 is effectively close to an "AI index." I think that’s a pretty accurate assessment. And that’s not a bad thing! It means we’re investing in the future. AI-driven rally splits US market as S&P 493 lags behind giants - CHOSUNBIZ - Chosun Biz
And frankly, when I see the S&P 493, I see an ocean of opportunity. I see companies that are ripe for disruption, companies that can leverage AI and other emerging technologies to create entirely new business models. What happens when AI-powered tools become accessible and affordable enough for every business, not just the "Magnificent 7?" This is the kind of breakthrough that reminds me why I got into this field in the first place.
Consumers and corporations alike are in a very vulnerable position if the AI narrative wobbles, but I don’t see that happening. We’re on the cusp of something truly revolutionary, and I, for one, am incredibly excited to see where it takes us.
