The S&P 500 is a cap-weighted index. Companies worth more count for more. At various points in history the top 10 holdings have represented 20-25% of the total index weight. As of May 2026, that number is around 35%. Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and a few others make up more than a third of a 500-company index.
What this means practically: the S&P 500 is less diversified than its name implies. When Nvidia falls 5%, the index feels it. When the mega-cap tech group collectively de-rates, the index moves with it regardless of what the other 490 companies are doing. This is not a new observation, but the degree is new.
For holders of passive index funds, the risk is that “diversification” now means substantial exposure to the performance of seven or eight companies in roughly similar businesses (software, semiconductors, cloud). A sector rotation out of mega-cap tech is effectively a broad market correction because of the weight.
The flip side: these companies generate a disproportionate share of S&P 500 earnings. The top 10 account for roughly 28% of index earnings alongside 35% of market cap, suggesting they are priced at a premium but not an unprecedented one relative to their earnings weight. Whether that premium is warranted depends on whether the earnings growth trajectory of the past five years continues, and whether AI-related capital expenditure translates into durable margin expansion or proves out to be a large-scale allocation error.