It is a very complex phenomenon, with no single driving force. The usual culprit is uncertainty, which itself can have a ton of root causes (say, tariffs changing every few weeks, or higher inflation due to government subsidies).

In more uncertain scenarios small companies can't take risks as well as big companies. The last 2 years have seen AI, which is a large risk these big companies invested in, pay off. But due to uncertainty smallish companies couldn't capitalize.

But that's only one possible explanation!

> The last 2 years have seen AI, which is a large risk these big companies invested in, pay off

LOL. It's paying off right now, because There Is No Alternative. But at some point, the companies and investors are going to want to make back these hundreds of billions. And the only people making money are Nvidia, and sort-of Microsoft through selling more Azure.

Once it becomes clear that there's no trillion dollar industry in cheating-at-homework-for-schoolkids, and nvidia stop selling more in year X than X-1, very quickly will people realize that the last 2 years have been a massive bubble.

That's a very out of the money view! If you are right you could make some very good money!

No as you and I both know - I can't. Because it's a qualitative view, and not a quantitative one. I would need to know _when_, quite precisely, I will turn out to be right.

And I don't know, because I have about 60 minutes a week to think about this, and also good quantitative market analysis is really hard.

So whilst it may sound like a good reposte to go "wow, I bet you make so much money shorting!" knowing that I don't and can't, it's also facile. Because I don't mind if I'm right in 12, 24 or 60 months. Fwiw, I thought I'd be right in 12 months, 12 months ago. Oops. Good thing I didn't attempt to "make money" in an endeavor where the upside is 100% of your wager, and the downside theoretically infinite.

Your reasoning is correct if you think about negotiating options, or going all in on a trade, but its not quite right for stocks. The borrowing rates for MSFT and NVDA - even for a retail investor - are less than 1% yearly. So if your view is right you could hold a short on them for years. The market cap for these companies has already incorporated a large capex investment for AI DCs. As long as you use a reasonable rebalancing strategy, and you are right that their current investment in AI will not pay off, you will make money.

Mind you, this is a view that exists - a few large hedge funds and sell side firms currently hold negative positions/views on these companies.

However, the fact of the matter is, fewer people are willing to take that bet than the opposite view. So it is reasonable to state that view with care.

You might be right at the end of the day, but it is very much not obvious that this bet has not (or will not) pay off.

Won’t you get margin called if the stock goes up in the meantime?

They are 40% of the S&P 500, so it makes sense that they are primary drivers of its growth.

They are also all tech companies, which had a really amazing run during Covid.

They also resemble companies with growth potential, whereas other companies such as P&G or Walmart might’ve saturated their market already

> They are also all tech companies, which had a really amazing run during Covid.

Only 8 out of the 10 are. Berkshire and JP Morgan are not. It is also arguable whether Tesla is a tech company or whether it is a car company.

Berkshire holds ~$60B+ of Apple and is also exposed to AI through its power-utility arm, Berkshire Hathaway Energy.

> Berkshire holds ~$60B+ of Apple and is also exposed to AI through its power-utility arm, Berkshire Hathaway Energy.

Apple is 22% of BRK’s holdings. The next biggest of their investments are Amex, BoA, Coke, Chevron.

They are not a tech company.

BRK has significant AI exposure through both Apple and Berkshire Hathaway Energy. So while they are not a tech company, they have more exposure to the AI boom than basically any other non-tech company.

That which might be of additional interest... look at how the top 10 of the S&P 500 has changed over the decades[1].

At any point in time the world thinks that those top 10 are unstoppable. In the 90's and early 00's... GE was unstoppable and the executive world was filled with acolytes of Jack Welch. Yet here we are.

Five years ago I think a lot of us saw Apple and Google and Microsoft as unstoppable. But 5-10 years from now I bet you we'll see new logos in the top 10. NVDA is already there. Is Apple going to continue dominance or go the way of Sony? Is the business model of the internet changing such that Google can't react quick enough. Will OpenAI go public (or any foundational model player).

I don't know what the future will be but I'm pretty sure it will be different.

[1] https://www.visualcapitalist.com/ranked-the-largest-sp-500-c...

There was always some subset of the S&P that mattered way more than the rest, just like the S&P matters way more than the Russel.

Typically, you probably need to go down to the S&P 25 rather than the S&P 10.

Winner takes most is now true at the global economy level.

The primary goal of big companies is (/has become) maintaining market dominance, but this doesn't always translate to a well run business with great profits, it depends on internal and external factors. Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable.

> Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable.

If you’re referencing Trump’s tariffs, they have only come into effect now, so the economic effects will be felt in the months and years ahead.

People have more room to buy more digital goods. There's far less room to buy more physical goods. People aren't going to double their stomach size to eat more McDonalds, but there's no limit to how much more data, software or AI tokens a person could require.

power law explains the distribution, but the distribution is getting more extreme over the years, likely due to (market structure, macro conditions, tech economics, etc)