TRUESHARES

TRUESHARES

Mag 7 to Lag 7: Is the Market Broadening?

For the past few years, a handful of companies have come to mind when we think of tech stocks: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — the Magnificent Seven. They dominated the market in 2023 and 2024, accounting for more than 50% of S&P 500 total returns when it closed both years above 20%.1 But this year is starting off with a different narrative and, potentially, a broadening of the market.

The S&P 500 is weighted according to market capitalization, leaving roughly 5% of companies responsible for half of the S&P 500’s movements.2 Over the last two years, only around 30% of companies in the S&P 500 outperformed the index, indicating the narrowest market since the late 1990s.1 However, in the first two months of 2025, nearly half of all S&P 500 companies were outperforming the index.1

Experts consider this an early indication that the market might finally have reached peak concentration.3 The market’s attempts to broaden in the past have not been sustained as it has overall become more concentrated in favor of the mega-cap tech stocks.3 But given how massive mega-cap tech stocks have become, the S&P 500 has not been as diverse over the past two years as people wanting broad market exposure think.2

Instead of a handful of mega-cap tech companies running the show this year, companies from non-tech and tech-adjacent companies have been outperforming the market. Earlier in the year, Visa, Costco, and JP Morgan made the top 10 list of contributors to the S&P 500. Notably for tech (and AI, specifically) Eli Lilly found itself in the top 10 as well, having contributed 3% of total returns as of late-February.1

Eli Lilly is just one of the 20-30 companies in our Technology, AI, and Deep Learning ETF (LRNZ) — our answer to tech investments far beyond the Magnificent Seven. It provides thematic yet diverse exposure to tech companies using advanced levels of AI in their businesses. This includes companies in cloud services and cybersecurity like Crowdstrike, Cloudflare, and Zscaler (all up and outperforming the market YTD*). It also includes companies in biotech, pharmaceuticals, and software. The portfolio manager uses fundamentals to hold companies that are believed to provide tech exposure with a focus on secular growth companies to intentionally help lower correlation to broad market indices like the S&P 500 and its Magnificent Seven leaderboard.

So when we think of tech stocks, we should think beyond the mega-cap, name-brand companies that drive the broader market up and down. We should, instead, think of tech stocks more broadly, to those that utilize, harness, enable, and optimize AI and other nascent technologies across sectors. Those companies that may not be name-brands yet, but have the potential to follow in the footsteps of the Magnificent Seven giants in due time.

  1. https://finance.yahoo.com/news/the-2025-stock-market-rally-isnt-just-about-the-magnificent-7-160232830.html 
  2. https://finance.yahoo.com/news/9-11-stock-market-sectors-200800786.html
  3. https://finance.yahoo.com/video/stock-market-broadening-may-happening-212033711.html

*As of March 28, 2025

For a full list of holdings, visit: https://www.true-shares.com/lrnz/

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