If you’re in the “stock market is in a bubble” camp, look no further than the composition of the S&P 500 (^GSPC).
The top 10 stocks now account for roughly 32% of S&P 500 earnings and over 41% of total market capitalization — levels not seen since at least 1980, according to new data from Barclays strategist Venu Krishna.
The “Magnificent Seven” stocks have been the primary driver of this market power concentration. Those seven companies — Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), Tesla (TSLA), Nvidia (NVDA), and Apple (AAPL) — are essentially powering the artificial intelligence boom.
These stocks are up on average 21% this year compared to a 15% gain for the S&P 500, according to Yahoo Finance data. Alphabet is the top performer with an advance of 62% amid optimism on its new Gemini 3 model.
In turn, the valuation of the S&P 500 has reached a level even most bulls would agree is on the rich side. Krishna’s work reveals the S&P 500 is trading at the 91st percentile relative to its 10-year valuation history.
“Complacency” could ignite an AI bubble, Deutsche Bank strategist Adrian Cox told me on Yahoo Finance’s Opening Bid (video above).
Read more: How AI, unemployment, and interest rates could shape the stock market and your investments next year
Indeed, complacency appears to have settled in, despite the risks investors had to endure this year.
Remember the “Liberation Day” tariff spectacle in April? The S&P 500 tanked 4.8% the day after President Trump unveiled sweeping tariffs on April 2. The Dow Jones Industrial Average (^DJI) dropped a staggering 1,679 points.
Tariffs are now in effect, though they are not as severe as first advertised.
And more recently, disappointments from AI darlings CoreWeave (CRWV) and Oracle (ORCL) have begun to call into question the near-term outlook for the AI trade.
“I think we’re going to see some pretty massive bifurcation in 2026 in the AI trade,” Sevens Report Research founder Tom Essaye said on Opening Bid.
Alphabet is Essaye’s top AI pick for 2026, though he acknowledges there are likely to be winners and losers from the Magnificent Seven complex next year.
“I think companies like Oracle that [are] not overextended financially but are sort of raising eyebrows with a lot of the spending that is tied to open AI, I think that companies like that could struggle,” Essaye added. “There’s going to be some pretty serious bifurcation. We’ve seen it in the last, say, two months of 2025. I think that gets worse in 2026.”
