Is the Magnificent 7 a House of Cards?

Why is the stock market still climbing amid economic uncertainty? The answer lies in the growing dominance of big tech companies. Explore how this market concentration is impacting long-term stability and what investors should know.

September 15th, 2025

People are hurting, how are stocks going up?

As we enter what feels like an eternal September of 2025, the economic picture feels bleak. Prices for groceries and other essentials remain stubbornly high, rent is a constant burden, and the notion of homeownership is just a dream for most of Generation-Z and even many Millennials. With household budgets stretched thin, spending on non-essentials is declining at an alarming rate. Average people are starting to struggle to make ends meet, and the overall sentiment on the economy has soured considerably, bordering on disgust.

Contrary to negative sentiment about the economy, the stock market is somehow able to defy gravity. Against the backdrop of hardship, major market indexes like the S&P500 are trending up and to the right. SPY is up nearly 13% so far in 2025. This feels rather paradoxical. If average people are struggling, how is it that the stock market could be doing so well? How is it not a reflection of the real economy?

However, the reality is more nuanced than the top-line metrics suggest. If you ignore the market's largest tech stocks, the performance of the market is largely flat. The market's entire upward momentum is being driven by this handful of companies.

How much of the stock market is tech?

The outsized influence of these few Big Tech companies on the S&P500 is staggering. In 2025, when we hear "the market is up", it often means this small club of companies is having a good year. The companies below account for over a third of the value in the entire S&P500. The level of concentration is historically high and warps the perception of the stock market's overall heatlh.

Nvidia 7.53% at $4.33T
Microsoft 6.7% at $3.79T
Apple 6.33% at $3.47T
Alphabet 4.56% at $2.91T
Amazon 4.07% at $2.43T
Meta 3.01% at $1.9T
Broadcom 2.86% at $1.7T
Tesla 1.76% at $1.28T

This lack of diversification should be a wake-up call for anyone with a retirement account. Millions of Americans diligently contribute to their 401(k)s and IRAs, very often through slight variations of the S&P500 index fund, under the assumption that they are achieving a broad, safe diversification. In reality, a huge portion of their savings is now effectively a concentrated bet on the continued success of this handful of tech giants. Without realizing it, millions of Americans have tied their financial future to these companies, all of which are valued on the assumption of domination in artificial intelligence.

Are the magnificent 7 good companies to invest in?

Since we are now de facto investors in these companies, we should be asking the obvious question - If we had to pick them individually, would these stocks still be our top choices? Let's take a quick look under the hood of these businesses.

Nvidia

Now the most valuable public company in the world, the rise of Nvidia has been meteoric, just recently surpassing $4 trillion in market cap. Its growth has been almost entirely fueled by demand for Artificial Intelligence. Its focus has decisively shifted from its gaming roots. Revenue from AI segments has hit an eye-watering $35 billion in Q2 2025 alone. However this success comes with its own concentration risk - 44% of that revenue comes from just two hyperscalers (massive cloud computing providers). The company is also pumping cash back to shareholders, through a recently announced $60 billion share buyback program.

Apple

The king of shareholder value is unquestionably Apple. The company is announcing $100 billion in share buybacks in 2025. This continues the trend of $110 billion in 2024, $90 billion in 2023, $89 billion in 2022, and $75 billion in 2019. While the iPhone remains its core product, sentiment around it grows increasingly stale. Competitors offer innovative folding phones, while the iPhone offers only incremental updgrades. Apple's real growth story is in its high-margin Services division. This includes the App Store, Apple Music, and iCloud, together which are seeing double-digit growth metrics.

Microsoft

If you want a model of steady growth and healthy profits, look no further than Microsoft. The company has not announced any share buyback programs for 2025, but its business fundamentals are undeniably strong. The key driver is in its Azure cloud platform, where AI service offerings contributed 16 percentage points of annual growth. Demand for its core products, like Microsoft 365 and its gaming segment, remain consistently high, providing a stable and predictable revenue stream.

Amazon

The e-commerce behemoth Amazon is a tale of two businesses. The famous online shopping platform operates on razor-thin margins. The behind-the-scenes Amazon Web Services (AWS) platform rakes in the money. The cloud computing division is the company's cash cow and grew almost 18% since last year. Like its peers, Amazon is investing heavily in AI infrastructure, which has caused its free cash flow metric to decrease significantly. The company has not engaged in stock buybacks since 2022.

Broadcom

Few people think of Broadcom when discussing artificial intelligence. And yet, the company has quietly become an AI powerhouse, with its AI revenue jumping 63% in the past year to over $5.2 billion. It sells custom AI accelerators and networking chips that get used by hyperscaler companies like Oracle when building out their data centers. But it's not just AI - Broadcom recently acquired VMWare, diversifying its revenue streams. The company announced a $10 billion buyback program in April 2025.

Alphabet

The parent company of Google, Alphabet has been spending a staggering amount of money in capital expenditures to build out its AI infrastructure and capabilities. It's also returning a whopping $70 billion to shareholders in 2025 through buybacks. While the core business of Google (adtech) remains untouchable, its "Other Bets" segment, which includes ventures like Waymo, remain unprofitable. On a positive note, a recent anti-trust ruling allowed the company to retain control of its Chrome and Android products, despite the courts acknowledging the existence of the Google monopoly.

Tesla

Despite the trillion-dollar valuation, the financials behind Tesla are not enviable. The company's core automotive business is showing signs of significant weakness, with total revenue dropping 12% in Q2 2025, and automotive gross margin falling to just 14%. Its net income was a relatively small $1.7 billion in Q2, leaving very little profit to work with. The real concern though, is that Tesla's additional revenue stream of selling regulatory credits to other automakers has dropped by over 50% in the past year, and will likely dwindle to zero in the next few years. This lack of revenue poses significant risk to Tesla's potential future profitability.

Is now the time to panic?

So should we be scrambling for the life boats, selling off our retirement accounts, buying into gold and bitcoin? Not exactly. While share buybacks certainly inflate valuations, the reality is that these companies are, for the most part, fundamentally profitable.

Perhaps the more pressing question here is about the sustainability of the engine driving the growth - the story of Artificial Intelligence. The common thread linking all these companies is the jaw-dropping levels of capital expenditures on AI infrastructure. CEO Jensen Huang of Nvidia predicts annual spending on AI infrastructure will balloon from $600 billion today to as much as $4 trillion by the end of the decade. Are we witnessing the foundation of a new technological revolution that justifies these insane valuations? Or is this reminiscent of the dot-com bubble, where the AI hype is far outpacing reality? That is the very real multi-trillion dollar question.