Dot-Com Level of Tech Dominance on Stark Display After DeepSeek

January 29, 2025

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(Bloomberg) — The warnings about Big Tech’s market dominance have gone largely unheeded by investors for years. And why not, when the Magnificent Seven rallied virtually nonstop, adding trillions in value.

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The words of caution took on a stark new contour Monday. Concern over DeepSeek slammed tech giants, dragging the broader market down — even as the majority of the S&P 500 advanced. A similar phenomenon took hold on Tuesday, with the giants’ bounce pulling the index higher while most stocks fell.

The recent volatility among tech giants has been particularly worrisome for Wall Street, as the S&P 500’s leadership hasn’t been this concentrated in more than 20 years. Data shows that less than one-third of index members were able to outperform the S&P 500 during the past two years, as Bank of America Corp. strategist Michael Hartnett has called out.

That resembles the run-up to the dot-com bubble at the end of the 1990s, when a similarly slim cadre of stocks were beating the benchmark. The risks for markets from such concentration have been on display this week, as the DeepSeek jolt wiped out half a trillion dollars of Nvidia Corp.’s market value.

“While surging equity returns coupled with high valuation provide fertile conditions for a correction, it is also the concentration of equities as an asset class that has left equity investors vulnerable to disappointments,” Goldman Sachs Group Inc. strategists led by Peter Oppenheimer wrote in a note. “The rising concentration in equities has taken three forms: the growing dominance of the US equity market in the global index, the ascent of the technology sector, and the rise in single stock concentration.”

Investors in US stocks have become used to the market’s dominance by big tech companies, with the so-called Magnificent Seven driving more than half of the S&P 500’s gains in 2024. Still, there have been signs breadth could improve: to start 2025, roughly three-fourths of benchmark’s stocks are in the green.

–With assistance from Michael Msika.