The “Magnificent 7” currently accounts for roughly 33% of the S&P 500's total market cap.

There’s an embedded assumption that this level of concentration—coupled with historically high valuations—indicates two things:

First, that this must be a bubble.

And second, that the bubble must pop.

Given these worries, I want to share a few thoughts on this topic and these companies here today.

The Market Is Concentrated...So What?!

A concentrated market doesn’t automatically indicate we are in a bubble or that the bubble (if one exists) is about to pop.

The last few years are evidence of this.

Pundits have been sounding this alarm for years now, but the trend continues.

Additionally, this ongoing trend, despite considerable obstacles, has produced impressive returns for equity investors.

In other words, had we heeded their previous warnings, our portfolio returns would have surely suffered.

It is indisputable, however, that the large-cap U.S. stock market is highly concentrated.

However, smart investors (like you and me!) don't just own U.S. large-cap stocks...

...and we don't think it would be prudent to do so.

We own diversified portfolios of companies of all sizes, sectors, and geographies.

Thus, we are intentionally far less concentrated than the S&P 500 index.

With all that said, let’s talk about the companies that seem to have everyone worried.

While the broad U.S. stock market is quite concentrated by historical standards, headline concerns may (and I stress, may) be overblown for two reasons:

#1 - Many of these “Mag 7” companies are, more or less, conglomerates.

When we analyze these companies, it becomes clear that they consist of several remarkable underlying businesses that would probably stand alone in the S&P 500 if they hadn't been formed within or acquired by these "Mag 7" companies.

👉 To name just a few: YouTube, Amazon Web Services, Whole Foods, Instagram, WhatsApp, LinkedIn, Activision Blizzard, Solar City, Beats Electronics, and Waymo.

#2 - Beyond the incredible subsidiaries noted above, the revenue from their individual product lines is nearly incomprehensible.

For example, Apple's 2024 revenue from the sale of AirPods is estimated to be $22 billion.

To provide context, that's comparable to the total generated by General Mills, BlackRock, Waste Management, and PNC Bank combined.

And it falls just short of McDonald’s. Yes, McDonald’s.

If Apple’s AirPods division were its own company, its market cap would be about $200 billion 🤯

That’s good for about 40th place in the index, right alongside the aforementioned McDonald’s, Pepsi, and Disney.

Pretty incredible, no?

While I may appear to be pumping these companies up, I am not.

I’m actually quite indifferent to them.

I’m simply pointing out that it’s tough to compare these companies to those of the past, which is what people love to do.

Things have changed, but note that I am not saying that, “This time is different.”

While these are incredible companies, they are not invincible.

In fact, I’d argue that their decline is, historically speaking, inevitable.

No company can outperform forever, and that’s okay.

Market rotation is perfectly normal.

Despite its constant presence, the market has grown 100x since 1960, not including dividends.

This is the best evidence we have for the prudence of diversification and why we shouldn't worry about these companies' potential decline.

You could say that the very point of planning and diversification is to render all forecasts unnecessary.

If there’s a chance of rain, we’d be wise to carry an umbrella.

This simple act of preparation can help us manage the stresses of the unknown.

Similarly, retirement savers should approach our uncertain future with similar preparation and a thoughtfully crafted plan.

» Need professional retirement (and tax) planning help? Grab one of the last times on our calendar for a Discovery Meeting.

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Thank you for reading!

Stay wealthy,

Taylor Schulte, CFP®