S&P 500's Weight In Mag 7 Stocks Passes 30%. Is This A Diversification Risk?
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While there aren’t definitive signs the Mag 7 stocks are losing momentum, they won’t remain dominant forever.
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There are 500 companies in the S&P 500, but only a small percentage have the power to move the index on their own. Among those elite companies are the Magnificent 7—seven stocks that helped drive the S&P 500 to 20%-plus gains in 2023 and 2024.
Thanks to their collective success, the Magnificent 7 stocks comprise over one-third of the S&P 500—prompting many investors to wonder if it’s time to worry about concentration risk. Let’s answer that question by reviewing the key factors, potential diversification strategies and expert commentary about the historically high Mag 7 concentration.
Understanding The Magnificent 7’s Performance
The Magnificent 7 Stocks are:
- Nvidia (NVDA)
- Microsoft (MSFT)
- Apple (AAPL)
- Alphabet (GOOG)
- Amazon (AMZN)
- Meta Platforms (META)
- Tesla (TSLA)
These seven stocks comprised about 36% of the S&P 500 large-cap index. The remaining 64% of the index was spread across 493 other companies.
The Mag 7 concentration first stretched above 30% in 2023. Only eight years prior, these stocks accounted for 12.4% of the S&P 500. By 2022, the concentration had risen to 21.6%. In those years, the collective market capitalization of the Mag 7 companies rose from $2.2 trillion to $6.9 trillion. Today, their total market cap exceeds $19 trillion.
The growth has been driven by technology innovation and leadership. Nvidia’s success in AI has been particularly influential. It encouraged other tech leaders to sharpen their AI focus and positioned AI as a major wealth opportunity for investors.
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How The S&P 500 Is Weighted
The S&P 500 weights its constituents using a free-float market capitalization method, which assigns higher weights to larger companies. As a result, larger companies have greater influence over the index than smaller companies.
Market-Cap Weighting Explained
Free-float market cap is the market value of a public company, calculated as the share price times the number of available shares. A stock’s free-float market capitalization relative to the aggregate market cap of the index determines its weight.
The total market cap of the S&P 500 is about $54.3 trillion. The largest index member is Nvidia, which has a market cap of $4.4 trillion. To calculate Nvidia’s weight in the index, divide $4.4 trillion by $54.3 trillion—which equates to about 8%.
How Stock Price Movements Impact Index Composition
Stock price changes affect a company’s market capitalization, which in turn influences the index. A company’s weighting in an index can increase when its stock performs better than others, assuming there’s no corresponding change in share count. A change to one company’s weighting changes all the weightings, since the weighting total is always 100%.
How These Compare To Equal-Weight Index Alternatives
Equal-weighted indexes give each constituent the same influence over the group. For example, an equal-weighted S&P 500 fund weights each company at 0.2%. In practice, this means a price increase from Nvidia is as influential as a price increase from Enphase Energy (ENPH), the smallest company in the S&P 500.
Note that the S&P 500 contains 503 stocks representing 500 companies. The three additional stocks relate to companies with multiple share classes, such as Alphabet’s (GOOG) and (GOOGL). Invesco’s S&P 500 Equal Weight ETF (RSP) splits Alphabet’s total weighting across its two share classes.
Benefits Of Mag 7 Concentration
Since 2023, Mag 7 concentration has contributed to a cumulative S&P 500 gain of 68.4%. In the same timeframe, Invesco’s RSP ETF gained 34.2%. That means market-cap weighting of the Mag 7 concentration has roughly doubled the gains for S&P 500 investors over the last two years.
Some of the Mag 7 have continued to be among the best stocks of 2025. As long as the group outperforms, the high concentration enhances S&P 500 returns.
Risks Of Over-Concentration In Mag 7 Stocks
Securities that can rise quickly can also fall quickly. There is a chance investors will become disillusioned with AI and technology stocks. Some analysts suggest this is already happening.
Last week, Nvidia, Microsoft and other tech stocks dipped after an MIT report suggested that AI investments are not producing measurable returns. These quick pullbacks happen because investors have high growth expectations for these tech leaders. Any sign of a more modest growth trajectory can prompt investors to sell.
So, just as Mag 7 outperformance can lift the S&P 500, underperformance of this group can drag the entire S&P 500 down.
Strategies To Reduce Concentration Risk
You can reduce your Mag 7 concentration risk by eliminating redundant funds, reallocating capital to an equal-weight fund or adding exposures to asset types that don’t overlap with the S&P 500.
Eliminate Redundant Funds
The first step to managing Mag 7 concentration risk is understanding how much exposure you have. Review your holdings and note any funds with overlapping portfolios. If you have an S&P 500 fund, market-cap weighted funds targeting any of the following groups will have overlapping Mag 7 exposure:
- Nasdaq-100
- Total U.S. stocks
- U.S. technology stocks
- U.S. large caps
More specifically, if you’re worried about Mag 7 concentration risk, you shouldn’t have your entire net worth split between, say, SPY and QQQ. Pick one or reduce your exposure to both.
Consider An Equal-Weight S&P 500 ETF
You can also shift some of your existing S&P 500 exposure to an equal-weighted fund.
The amount you move depends on your outlook for the Mag 7. If you believe the technology run is largely played out, you could drop the market-cap-weighted exposure entirely. Or, you could take a more modest approach and move 25% of your market-cap-weighted S&P 500 funds into an equal-weighted fund. This would dilute your concentration slightly but still provide upside if Nvidia and friends continue creating value.
Add Small-Cap, Mid-Cap And International Stocks Or Funds
The S&P 500 is a large-cap index. It has no exposure to small caps, mid caps or international stocks. You could therefore dilute your Mag 7 exposure by investing in these categories via individual stocks or funds.
If you are investing in a taxable account with unrealized gains, this reallocation will have tax consequences. You could delay the tax liability by changing the composition of your future trades instead of selling to rebalance. This would shift your exposure gradually. Or, if you’re worried about an imminent dip in Mag 7 stocks, sell off a chunk of your S&P 500 exposure and use the proceeds to pay taxes and add the new holdings.
Expert Opinions On The Mag 7 Concentration
In interviews, two experts characterized the Mag 7 concentration risk as worthy of caution, but not panic.
Ayako Yoshioka, portfolio consulting director at Wealth Enhancement, notes that most of the Mag 7 companies have strong business models and healthy balance sheets. And while their valuations are high, they are “not overly outlandish,” in Yoshioka’s view. She says concentration risk is a concern, “but timing when it will become a material consequence to overall index returns is difficult to predict.”
Dion Hinchcliffe, vice president and CIO practice lead at Futurum Group, believes Mag 7 dominance will continue to enhance returns in the short term. But longer term, the dynamic will change. Signs to watch for include slowing AI monetization and rising investor interest in lagging sectors. Hinchcliffe says, “The danger isn’t just the Mag 7 falling, it’s that the rest of the index is simply too weak to pick up the slack when they do.”
Bottom Line
The high concentration of the Mag 7 in the S&P 500 increases the index’s potential volatility, but also enhances returns. While there aren’t definitive signs the Mag 7 stocks are losing momentum, they won’t remain dominant forever. Diversification into other asset types can prep your portfolio for that shift.