New data from Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, reveals that the market dominance of the top 10 AI-driven stocks in the S&P 500 has rebounded to levels last seen during the dot-com bubble.
Her analysis shows the widening performance gap between this equal-weighted basket of stocks and the rest of the S&P 500 is approaching early-2000s peaks – underscoring how heavily the current market rally still relies on a handful of names.
This concentration represents both the "superpower" of the "Magnificent Seven" tech giants and the market’s "Achilles’ heel."
Calvasina notes that while 83% of S&P 500 companies have beaten earnings estimates this quarter, the pace of upward revisions is slowing – even among the big tech stocks driving 2025’s market gains.
"Recreating the wave of earnings optimism that previously propelled markets higher will prove increasingly difficult," she warns, adding that further deterioration in earnings expectations could become "a catalyst for routine pullbacks."
This isn’t the first caution from Wall Street observers. The market’s leadership has narrowed so dramatically that even modest underperformance by one or two key stocks could destabilize the rally – like a hairline crack exposing structural fragility beneath polished armor.
This vulnerability will face its first major test this week as earnings season kicks off for the Magnificent Seven cohort, including
Against resurgent "AI bubble" rhetoric, these results will determine whether tech giants’ fundamentals justify their hype.
Some strategists argue the picture is more nuanced. Citi’s Drew Pettit maintains markets haven’t yet entered full bubble territory, noting AI-related valuations "don’t currently exhibit bubble characteristics," though he warns certain segments show signs of overheating.
Pettit advises investors to stay invested but diversify across the AI value chain while seeking reasonably priced growth stocks – a tacit acknowledgment that despite tech titans’ robust fundamentals, the rally’s narrowing leadership makes its foundation increasingly precarious.
Institutional investors are already adjusting exposures. A Reuters analysis found major funds recycling profits from
Herein lies the market’s central paradox: these tech behemoths simultaneously serve as its gravitational core, its strongest pillar, and its most fragile pressure point.
As earnings season unfolds, these very companies – the engines of the rally – will determine whether the uptrend endures or whether the market’s Achilles’ heel finally buckles.