(Bloomberg) — Shares of chipmakers are increasingly dominating the S&P 500 Index, powering stocks to record highs while stirring concerns over the rally’s durability.
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A selloff on Friday brought those worries to the forefront, as the benchmark fell 1.2% in its biggest drop since March while a gauge of chipmakers sank 4%. For most of 2026, however, the two have risen together, with a handful of semiconductor companies accounting for more than half of the 8% gain in the S&P 500 this year. Winners include bull market mainstay Nvidia Corp., as well as Sandisk Corp., which has climbed almost 500% year-to-date and Micron Technology Inc., whose shares have more than doubled.
Fueled by demand for chips to power the artificial intelligence industry, the rallies have buoyed the benchmark index in the face of a war in the Middle East and surging oil prices. At the same time, chip stocks now make up 18% of the S&P 500, a more than-two-decade high. That increased concentration can exacerbate broader market selloffs if momentum shifts or chip demand cools — an ever-present risk in a sector known for boom-and-bust business cycles.
“When you have such concentrated returns, it leaves you more vulnerable to these abrupt moves,” said Keith Lerner, chief investment officer at Truist Advisory Services. “Even if the fundamentals are supporting it, things don’t move in a straight line forever.”
So far, there are few signs that the spending driving the rally will slow anytime soon, with tech giants locked in a race to expand computing capacity. The four biggest spenders — Amazon.com Inc., Microsoft Corp., Alphabet Inc. and Meta Platforms Inc. — are expected to plow nearly $700 billion into capital expenses this year. Capex will approach $5 trillion over the next five years, according to some estimates.
Meanwhile, tech profits are booming, with earnings from semiconductor-related companies in the S&P 500 on track to jump 84% from a year ago in the first quarter. For some individual companies, the projections are staggering: analysts see Micron, the biggest US maker of memory chips, growing earnings by 670% in 2026 to $65.8 billion.
“So long as earnings keep accelerating, we’re not too concerned,” said Jeffrey Blazek, co-chief investment officer of multi-asset at Neuberger Berman Group. “The moves up have been matched by a step-up in earnings, and there’s no indication that’s weakening.”
