Why a Few AI Stocks Are Driving the Whole Market
Profits were expected to rise in 2026 for all 11 groups in the S&P 500, an index of 500 large U.S. companies. AI-related companies were expected to lead that growth. That forecast was reported on Oct. 1. Reuters
The index was up about 12% for the year as of Sept. 8. It was about 1% below its record close on Aug. 13. That pullback was small. The market still relied on a few winners. Reuters
That reliance on a few stocks had reached historic levels as of May, as the AI boom picked up speed in the U.S. and other countries. By September, makers of AI chips had the largest gains for the year among S&P 500 companies. Profit forecasts had broadened. Price gains had not. Reuters Reuters
Analysts on average expected second-quarter profits for the index to jump 39% from a year earlier. AI-related stocks accounted for much of that growth. Earlier results were already strong. As of April, 81.3% of S&P 500 companies had done better than analysts expected, and total profits were expected to be up 16.1%. Reuters Reuters
Trading around AI has swung sharply. Investors grew nervous about the AI rally after industry leaders called for slowing the pace of AI development. Selling that started in software stocks spread to wealth management and delivery companies, with cybersecurity firms among the latest hit. Wall Street then ended higher on a Friday in late September, lifted by Microsoft and other AI-related tech stocks. Reuters Yahoo Finance Reuters
The broader context here is that investors are betting on two things at once. Profits rising across all groups supports today's stock prices. But most price gains come from AI chipmakers and big tech companies. That leaves ordinary savers exposed if those few stocks fall.
In my view, it helps to separate profits from prices. Profits are what companies earn. Prices are what investors pay for those earnings. A 39% jump led by a few companies means earnings depend a lot on spending on AI, use of cloud services, and demand for chips. In April, more than 80% of companies beat forecasts and growth was 16.1%, so business results were broad. Prices were narrow.
Looking at what this means for ordinary investors, this narrow market changes what index funds do. Most index funds own more of the biggest companies, like putting more eggs in one basket. When those few stocks move, the whole fund moves. Owning many sectors helps less when only a few stocks drive returns.
The scare trade rotation is instructive for risk desks. Selling spread from software to wealth management, delivery firms and cybersecurity. That points to worries about companies hurt by AI change or heavy AI spending, not just too many chips in warehouses. The late-September rebound led by Microsoft shows fear can flip fast in both directions, and crowded bets make swings bigger.
For credit and equity analysts, the question for year-end is simple. If all 11 groups grow, total profits can hold up even if AI slows. Stock prices may not hold up the same way, because this year's gains sit with so few names. That gap between broad profits and narrow gains is the risk to watch.
