The benchmark S&P 500 is considered to be highly diversified, but its performance increasingly rests on a handful of technology companies.
The S&P 500 (^GSPC -0.37%) is composed of 500 stocks from 11 different sectors, including information technology, energy, financials, and real estate. While it is the most diversified of the major U.S. stock market indexes, a select few technology stocks are having a growing influence over its performance thanks to their meteoric rise in value.
As of this writing, the following five companies have a combined market capitalization of $12.5 trillion, accounting for 27.3% of the total value of the entire S&P 500:
- Microsoft (MSFT -1.70%) has a market cap of $3.2 trillion.
- Apple (AAPL -0.01%) has a market cap of $2.9 trillion.
- Nvidia (NVDA -0.80%) has a market cap of $2.8 trillion.
- Alphabet (GOOG -0.74%) (GOOGL -0.79%) has a market cap of $2.2 trillion.
- Amazon (AMZN -2.28%) has a market cap of $1.9 trillion.
The S&P 500 index is up 11.5% in 2024 so far. However, the S&P 500 Equal Weight Index -- which assigns an equal weighting to every stock regardless of its market cap -- is up just 4.9%. The difference can be explained (in large part) by the average year-to-date gain of 26.3% in the above five stocks, which highlights their influence over the performance of the S&P 500.
Each of the five companies has a track record of success spanning decades, and they are using that experience (and their vast financial resources) to dominate new industries like artificial intelligence (AI). If they succeed, they could become even more influential over the S&P 500.
1. Microsoft: 7.2% of the S&P 500
Microsoft is the world's largest company. It was founded in 1975, and some of its flagship products like Windows and Word are still used by billions of people today. Microsoft has expanded beyond software and into gaming, hardware (computers and devices), internet search, cloud computing, and now, AI.
At the beginning of 2023, the company agreed to invest $10 billion in AI start-up OpenAI, which created the ChatGPT online chatbot. Microsoft is integrating OpenAI's technology into most of its products to deliver more value for users. The Bing search engine, for example, now features a chatbot interface, and applications like Word, PowerPoint, and Excel are benefiting from AI's ability to rapidly craft content from text to videos.
Microsoft has cemented itself as a leader in AI thanks to the OpenAI partnership, and its products will continue to benefit from the start-up's lightning-paced innovation.
2. Apple: 6.2% of the S&P 500
Apple makes some of the world's most popular consumer electronics, with 2.2 billion active devices worldwide. That includes the flagship iPhone, the iPad, and the Mac line of computers. The iPhone also led to successful, billion-dollar spinoff devices like the Watch and AirPods wireless headphones.
Apple's enormous installed base makes it the perfect distributor of AI software to consumers. The latest iPhone 15 Pro already comes with the Apple-designed A17 Pro chip, designed to process some AI workloads on-device. The company is reportedly in talks with OpenAI and Alphabet to decide which AI models will power its future devices, so consumers should expect its next iteration of chips to come with even greater processing capabilities.
Eventually, devices like the iPhone might come with advanced AI assistants capable of answering complex questions and crafting emails and social media content (among other things). Modern smartphones are simply pocket-sized computers, and, generally speaking, they have made humanity far more productive. AI is set to accelerate that trend.
3. Nvidia: 5.9% of the S&P 500
Generative AI is developed, trained, and deployed in large, centralized data centers. Nvidia designs the graphics processing chips (GPUs) that fill those data centers, and they are the most sought-after in the industry among AI developers. During fiscal 2024 (ended Jan. 28), Nvidia's H100 GPU drove the company's data center revenue to $47.5 billion, which was a whopping 217% year-over-year increase.
The company just reported its financial results for the first quarter of fiscal 2025 (ended April 28), and growth in its data center revenue accelerated to 427%. The H100 buoyed sales, but shipments of the new H200 GPU are set to begin in Q2. It can inference (the process of feeding live data to an AI model so it can make predictions) twice as fast as the H100 while consuming half the amount of energy, which could trigger another demand wave from leading data center operators like Microsoft, Amazon, and Google.
In essence, Nvidia remains far ahead of its competitors, and the development of next-generation AI models won't be possible without its GPUs. The company plans to launch a new series of chips later this year that are built on its latest Blackwell architecture, and they will deliver even greater performance.
4. Alphabet: 4.3% of the S&P 500
Alphabet is the parent company of Google, and it's also home to other tech subsidiaries like YouTube, autonomous driving company Waymo, and AI developer DeepMind. Google Search remains Alphabet's largest source of revenue, but investors have questioned whether AI chatbots could unseat its dominance, given their ability to provide an instant answer to practically any question.
Data is king when it comes to AI, and since Google Search has been the window to the entire internet for more than two decades, it has more valuable information than practically any company on Earth. This allowed Alphabet to develop its own AI models, culminating in its latest Gemini lineup, which is designed to compete with OpenAI's GPT-4 models. In some tests, Gemini is as good, if not better, at understanding and generating text, images, videos, and computer code.
Google also embedded generative AI into its traditional search engine, which provides the user with a text-based answer at the top of the page to save them from sifting through web results to find the information they need. Alphabet's AI initiatives are resonating with investors, who have catapulted the company into the exclusive $2 trillion club this year.
5. Amazon: 3.7% of the S&P 500
Amazon is best known as an e-commerce company, and online sales remain its largest source of revenue. But the company has branched out into streaming, digital advertising, robotics, and cloud computing (among other things), which have all contributed to the company's position on this list. In fact, its cloud platform, Amazon Web Services (AWS), is the biggest in the industry, and it's home to a growing number of AI services.
Amazon CEO Andy Jassy wants AWS to dominate the three layers of AI. There is the infrastructure layer, the model layer, and the application layer. To achieve this, the company now designs its own AI chips for the data center, it offers a growing portfolio of ready-made large language models (LLMs), including some it developed in-house, and it recently launched a generative AI assistant called Q, which can help businesses extract more value from the AWS platform.
Amazon also uses AI in its core e-commerce platform to recommend products to customers and to help advertisers craft engaging content. Simply put, this is one of the most diversified companies an investor can own during the AI revolution.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
