If you have glanced at the financial headlines recently, you may have noticed a familiar theme: concern that the stock market has become too concentrated. A small group of companies now makes up an unusually large slice of major indices, and most of them sit squarely in the technology and artificial intelligence space. The worry is straightforward enough – if these giants stumble, the rest of the market could wobble, and investors might feel the impact quickly.
It’s not an unreasonable concern, and it’s one we hear regularly. But before assuming that today’s market structure is uniquely risky, it’s worth pausing to look at what’s really behind those numbers.
Big companies aren’t that simple
One thing that often gets lost in the discussion is that the largest companies in the index aren’t single, neatly defined businesses. They’re collections of major operations, many of which would be household names if they were listed on their own.
Apple is a good example. Its AirPods business alone is estimated to bring in around $20 billion a year. If it were spun off tomorrow, it would instantly be bigger than companies such as Spotify, Nintendo, eBay, and Airbnb by revenue. The same could be said for Apple’s Mac, iPad, and Wearables divisions – each could comfortably sit among the world’s largest technology firms.
This pattern shows up everywhere at the top of the market. YouTube, tucked inside Alphabet, generates roughly $54 billion in annual revenue. Amazon’s cloud arm, AWS, recently crossed $100 billion. Microsoft houses Azure, LinkedIn, Xbox, and Office 365, all producing billions on their own.
So, when we talk about “10 dominant companies”, we’re really talking about dozens of substantial businesses grouped under a small number of corporate umbrellas. If those umbrellas were removed, the market would look far more diversified, even though nothing fundamental had changed.
Market dominance is nothing new
It’s also worth remembering that markets have always been led by a relatively small group of companies. This isn’t a quirk of the modern era.
In the 1980s, energy firms and industrial giants ruled the roost. In the late 1990s, it was telecoms and early internet names. Many of those leaders have since shrunk or disappeared entirely. The names change, but the structure stays remarkably consistent: a handful of companies tend to drive a large share of returns at any given time.
What does feel different today is that these leaders are backed by real revenues and real profits. They’re selling products and services to billions of people every day. That doesn’t make them immune to competition or technological change, but it does mean their dominance isn’t built purely on hope or hype.
Market has a built-in reset button
Another point that often gets overlooked is how index investing actually works. You’re not permanently tied to today’s biggest winners.
If a company’s fortunes fade, its share price falls and its weight in the index naturally shrinks. If new businesses emerge and grow, they gradually take their place. This process happens quietly and continuously, without the need for investors to make dramatic decisions.
Over time, today’s leaders are replaced by the next generation – just as they replaced those that came before them. It’s happened many times over the past century, even if it never feels obvious while you’re living through it.
So what should investors do?
Even if market concentration does mean slightly bumpier returns ahead, the more important question is what, realistically, investors should do about it. Try to guess which companies will fall from favour? Move large amounts into cash and hope for better timing later on?
Each alternative comes with its own set of risks and assumptions. In many cases, reacting to perceived concentration can introduce more uncertainty than simply staying the course.
When we look past the headlines, what we see is a market dominated by profitable, globally diversified businesses, within a system designed to adapt as conditions change. For investors with a long-term horizon – 10 years or more – today’s concentration is unlikely to be the deciding factor in their outcome.
Staying broadly diversified across thousands of companies remains a sensible, boring and surprisingly resilient approach, even when a small group grabs most of the attention. And as ever, the right strategy depends on personal circumstances – something that’s best explored thoughtfully, rather than in response to the latest wave of concern.
The advice provided in our columns does not constitute legal or financial advice and is provided for your information only. Readers should seek appropriate independent legal and financial advice from a regulated professional
