The rise and rise of the mega-cap US technology stocks

We have previously commented on the growth of the ‘Mag 7’ and AI chipmakers, highlighting how global share indices have become ever more concentrated upon the performance of a handful of massive technology businesses. For example, AI chip designer Nvidia recently hit a market valuation of over $5.5 trillion while Micro Technologies recently broke through the $1 trillion value ceiling.

It appears as if the market concentration is set to further increase in 2026 with the expected Initial Public Offerings (IPOs) of three companies – SpaceX, OpenAI, and Anthropic. SpaceX is targeting a $1.75 trillion IPO valuation. To put this in context, the value of the entire UK stock market is currently about £2.45 trillion. The three new US IPOs are likely to enter the US top 10 rankings by market value in the S&P 500 index. This means that the ten largest US companies by market capitalisation will account for about 50% of the index, up from 40%.

This does mean that the performance of the S&P 500 index will become even more dependent upon the trading performance of these massive companies. Vanguard’s S&P 500 tracker recently became the first exchange-traded fund to hit $1 trillion in assets, reflecting the weight of passive money ready to buy into huge listings like SpaceX. The fund has quadrupled in size since 2022.

What does the emergence of these massive US companies and passive funds mean?

It suggests global markets may become more volatile, particularly if there is sudden bad news or a bout of profit-taking. For example, the US NASDAQ technology focused index fell by over 4% on Friday!

Through the listing of OpenAI and Anthropic, the US top 10 will also become more concentrated on the AI investment story. US equities have recently hit record highs driven primarily by the results of the AI chipmakers and hyperscalers who continue to ramp up AI capital investment to breathtaking levels. The AI ‘arms race’ is well and truly underway and reaching fever pitch. While much of the AI investment is underpinned by massive revenue backlogs, the return on capital investment remains a question mark. Only time will tell how this, together with the AI stock concentration, plays out in share index performance.

What have we been watching?

After the recent strong run, markets finally lost their footing at the end of last week given the lack of a US-Iran peace deal, negative headlines on AI and mounting speculation about a US interest rate hike. The Philadelphia Semiconductor Index fell by over 10% on Friday, not helped by Broadcom’s softer earnings earlier in the week.

All this comes as tensions in the Middle East are building again with renewed missile strikes between Israel and Iran, despite the so-called ceasefire. Trump does not want this war to escalate further and is trying to find ways to avoid it. However, Iran’s Revolutionary Guard has warned of a ‘full week of continuous strikes’ following Israel’s ongoing offensive in Lebanon. The latest developments further complicate the chances of an imminent peace deal. The key sticking points remain to be resolved – Iran’s frozen assets, its stock of highly enriched uranium, Israel’s fight against Hezbollah in Lebanon and control of the Strait of Hormuz.

Read our latest investment insights from Alpha PM

 

Brent oil has risen over 4% this morning to $97 following the exchange of attacks between Israel and Iran.

 

Trump’s tariffs were also a feature last week. The 150-day window for the current 10% Section 122 tariffs expires by the end of July. The Office of the US Trade Representative has therefore proposed new tariffs, ranging from 10% to 12.5%, targeting goods from major trading partners. This initiative stems from an investigation into the alleged use of forced labour in production. A 10% tariff is suggested for imports from the UK, EU, Canada and Mexico. A higher rate of 12.5% would be applied to China, India, Japan, South Korea and Brazil. The latest tariffs are subject to public hearings in early July and could well come into effect as the Section 122 tariffs expire.

The week ahead in the US will be a key one with the May inflation data closely scrutinised for the effects of Trump’s tariffs and Middle East developments. The timing is critical ahead of the Federal Reserve’s next meeting under new Chair Kevin Warsh. The case for an interest rate hike rather than a cut has been reinforced by last week’s US nonfarm payroll data, which exceeded forecasts. Bond markets are pricing in an interest rate hike later in the year, with the US 10-year Treasury yield having climbed to above 4.5% at the end of last week.

 

The European Central Bank (ECB) is expected to increase interest rates by 0.25% to 2.25% when it meets this Thursday.

Finally, in Alpha Bites AI RAM raid, we recently highlighted the increased cost of Random Access Memory (RAM) due to the explosive growth of AI. This is now starting to hit consumers, particularly gamers. For example, the price of Nintendo’s Switch 2 is to increase by 11% from September. Trump’s tariffs and his Gulf War have also adversely impacted supply chains, adding to costs. So genuine reasons for the price increase rather than Nintendo playing silly games!

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