Big Tech has become the market’s superpower — and its Achilles' heel
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The top 10 stocks in the S&P 500, led by the AI giants, have surged back to dot-com era levels of dominance, according to new data from Lori Calvasina, head of US equity strategy research at RBC.
Her chart shows the group’s equal-weighted performance versus the rest of the S&P is approaching the highs of the early 2000s — a reminder of just how dependent this rally remains on a handful of names.
It’s the superpower of the Magnificent Seven. It’s also the market’s Achilles’ heel.
Calvasina points out that while 83% of S&P companies are beating on earnings so far this quarter, the pace of upward revisions is slipping, even among the megacaps that carried 2025’s rally.
“It will be difficult to replicate the same kind of surge in earnings optimism that helped power markets higher,” she wrote, warning that further deterioration could be “a contributing factor to a garden-variety pullback.”
It’s a warning Wall Street watchers have hinted at before. The market’s leadership has grown so top-heavy that even a stumble from one or two names could threaten the rally’s balance — a small crack in the armor that risks exposing the weakness beneath.
That vulnerability comes into sharper focus this week as the first members of the Magnificent Seven cohort prepare to report.
Hyperscalers and tech juggernauts, including Microsoft (MSFT), Alphabet (GOOG, GOOGL), Meta (META), Amazon (AMZN), and Apple (AAPL), will take the stage.
It’s a lineup that will test whether Big Tech’s fundamentals can keep pace with the hype amid renewed talk of an AI bubble.
Some strategists say it’s not that simple.
Citi strategist Drew Pettit doesn’t see an outright bubble, at least for now. In a recent note, he wrote that AI valuations “do not look like a bubble yet,” though he warned that pockets of excess are emerging in certain corners of the market. A theme we’ve been talking about in this newsletter lately.
Pettit told his clients that the best approach now is to stay invested but to diversify across the AI value chain and look for growth at a justifiable valuation. It’s a subtle acknowledgment that while Big Tech’s fundamentals remain strong, leadership has grown narrow and the rally’s footing is starting to look uneven.
Professional money is already adjusting. An analysis from Reuters found big investors rotating within the AI trade, recycling profits from Nvidia and Microsoft into next-in-line plays like robotics, software, and Asian tech.
Reuters described it as a trade “spooked by AI exuberance yet wary of betting against it.”
And that’s exactly the tension: Big Tech remains the market’s center of gravity, its greatest strength and its most fragile point.
As earnings season hits full stride, the same giants that built this rally could determine whether it holds or whether the market’s Achilles’ heel finally gives way.
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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