Nvidia Now Outweighs 256 S&P Companies Combined―This Is Getting Extreme

Nvidia Corp. (NASDAQ:NVDA) has become so dominant in the U.S. stock market that its market capitalization now outweighs more than half the S&P 500’s constituents put together.

“Nvidia alone now carries more index weight than the combined weight of the smallest 256 companies,” said Lance Roberts of Real Investment Advice in his latest market outlook.

In other words, a single stock outweighs more than half of the benchmark’s members put together.

The Market Is Rising on Fewer Shoulders

Market breadth measures how many stocks are taking part in a rally. Right now, very few are.

Only 25% of S&P 500 stocks trade above their 50-day moving average, a widely followed gauge of a stock’s short-term trend.

In the third quarter, the S&P 500 gained 2.1%. However, the equal-weight version of the index fell 2.2%. As a result, the typical stock lost money while the headline index rose.

Last week followed the same pattern. The S&P 500 slipped 0.3%, while the equal-weight index fell 0.7%. Meanwhile, only two of the 11 sectors, technology and energy, closed above their own 50-day averages.

Wall Street Sees Concentration at Record Levels

Large asset managers have been flagging the trend for weeks.

Capital Group said last month that concentration had reached historic levels.

At the end of July, the 10 largest S&P 500 companies made up more than 39% of the index. That surpassed the dot-com peak of March 2000.

CIBC Private Wealth said on Sept. 25 that level was unprecedented, at about three times the long-run average.

J.P. Morgan Asset Management added that technology and communication services now make up 47% of the index, up from 22% in 2014.

Some large investors are already acting on those concerns. The Financial Times reported Oct. 5 that major global pension funds are reducing their exposure to U.S. equities amid high valuations and rising AI-driven concentration risk.

Nvidia Earns Less Than Half What Those 256 Companies Earn

Nvidia generated $197.6 billion in operating income over the past 12 months.

That is the largest figure in the S&P 500. It is ahead of Microsoft Corp. (NASDAQ:MSFT) at $155.2 billion and Apple Inc. (NASDAQ:AAPL) at $154.9 billion.

However, the 256 smallest companies in the index generated $487.3 billion in operating income combined over the same period. That is roughly 2.5 times what Nvidia earned.

In other words, investors are paying about the same for Nvidia as for those 256 businesses together, even though those businesses produce about 2.5 times as much operating profit.

Nvidia’s operating profits only match those of the smallest 137 companies in the index.

There is a reason for the gap. Nvidia keeps about 65 cents of operating profit from every dollar of sales. The 256 smallest companies keep about 13 cents. Nvidia’s revenue also grew 83% year over year.

Investors are paying for that growth and those margins.

As a result, the overall market now depends on how long both can last.