Semiconductor giant NVIDIA Corporation NVDA has been surging in value and could soon be the most valuable company in the world.
The strong gains for Nvidia and other Magnificent 7 stocks have helped boost several major stock indexes, but also show significant weighting for a small basket of stocks.
What Happened: Strong first-quarter financial results from Nvidia have sent the stock to new all-time highs and a market capitalization closing in on Microsoft Corp MSFT and Apple Inc AAPL.
The gains by Nvidia have also pushed the weighting of the top five stocks in the S&P 500 to highs since at least 1980.
A chart shared by Nate Geraci on X shows that the top five holdings make up 27.1% of the S&P 500, which is the highest going back to at least 1980.
The top five holdings in the S&P 500, which is tracked by the SPDR S&P 500 ETF Trust SPY, are Microsoft, Nvidia, Apple, Amazon.com Inc AMZN and Alphabet Inc GOOGGOOGL, which are all Magnificent 7 stocks.
Here are the current weightings of Magnificent 7 stocks in the S&P 500 ETF Trust, with their one-year and year-to-date returns.
- Microsoft: 7.17% of assets, +29.9% one-year return, +14.4% year-to-date return
- Nvidia: 6.30%, +185.2%, +130.6%
- Apple: 6.18%, +8.3%, -0.3%
- Amazon.com: 3.73%, +50.7%, +20.7%
- Meta Platforms META: 2.37%, +82.8%, +35.3%
- Alphabet Class A (GOOGL): 2.33%, +42.7%, +26.3%
- Alphabet Class C (GOOG): 1.97%, +42.7%, +26.2%
13. Tesla Inc TSLA: 1.10%, -12.6%, -29.3%
The top five companies, which includes both classes of Alphabet, make up 27.7% of the ETF as of Tuesday. The Magnificent 7 stocks, make up 31.15% of the ETF.
Tesla is the outlier with a negative return on both the one-year and year-to-date performance. Apple shares are also slightly down on a year-to-date basis.
Looking at the Invesco QQQ Trust QQQ, which tracks the Nasdaq 100 Index, the Magnificent 7 have an even bigger weighting, which is as follows with their position in the fund in parentheses.
Microsoft (1st): 8.68%
Apple (2nd): 7.96%
Nvidia (3rd): 7.23%
Amazon (4th): 5.10%
Meta Platforms (6th): 4.54%
Alphabet Class A (7th): 2.80%
Alphabet Class C (8th): 2.71%
Tesla (10th): 2.35%
Related Link: EXCLUSIVE: Nvidia Dow Jones Inclusion ‘A Matter Of When’ — Will It Replace Intel?
Why It's Important: The strong gains of Nvidia outperform the rest of the Magnificent 7 stocks and make up a large portion of gains realized over the last year and year-to-date for the ETFs above.
The SPDR S&P 500 ETF Trust is up 25.4% over the last year and up 10.9% year-to-date. The Invesco QQQ Trust is up 30.9% over the last year and up 11.8% year-to-date.
Analysts predict Nvidia shares will trade higher in the coming months with strong optimism for new products and continued artificial intelligence growth opportunities.
The concern for investors could be the high weighting the seven companies have on a composite index that is supposed to represent the overall U.S. stock market. Any setbacks or pullbacks for the Magnificent 7 stocks could hurt the overall return of the ETFs more than normal.
With 500 stocks represented in the SPDR S&P 500 ETF Trust, the fact that the top seven companies make up 31%, means that 493 stocks make up around 69% of the weighting. A gain by one of the non-Magnificent 7 companies in the index has a smaller impact on the ETF than in years past.
While many investors may choose to look elsewhere for investment vehicles that are not as concentrated on the Magnificent 7 names, Nvidia being a trending stock and in the news a lot could lead to investors being ready to invest in ETFs that have heavy weighting in the stock and other companies that could benefit from the AI growth.
For investors wanting even more exposure to the Magnificent 7 stocks there is also the Roundhill Magnificent Seven ETF MAGS, which holds only those companies in the ETF.
Photo: Unsplash
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