Semiconductor names have never before held this much sway over the stock market. Here's how much of a problem that could be.

MW Semiconductor names have never before held this much sway over the stock market. Here's how much of a problem that could be.

By Frances Yue

Rarely has a single industry group reached a weighting of 15% or more within the S&P 500

Semiconductor stocks now account for more than 15% of the S&P 500.

Semiconductor stocks have become an unusually large force in the U.S. stock market, underscoring how much of the latest rally in indexes like the S&P 500 has been powered by the artificial-intelligence trade.

So far, the broader market has continued to chug higher. But history shows this could end badly for those who buy semiconductors at, or near, the top.

A chart from Strategas, shared with MarketWatch on Tuesday, shows that the semiconductor industry group now accounts for more than 15% of the S&P 500 SPX.

Since 1990, only a handful of industry groups have reached that level of concentration within the index. Previous examples included tech hardware during the dot-com bubble, energy stocks around the financial crisis and software in the late 2010s, according to the chart.

The S&P 500 is weighted by market capitalization, meaning the biggest companies have the largest influence on the index's moves. As chip makers and other AI-linked companies have seen their shares surge, their weighting in the index has risen as well. That makes the broader market more exposed to the fortunes of a relatively narrow group of stocks, even for investors who simply own an S&P 500 index fund.

The rise of semiconductors highlights one of the central tensions in the current bull market: Based on the performance of major indexes like the S&P 500, stocks have kept climbing, leaving a trail of record highs in their wake. But leadership has become increasingly concentrated within a narrow group of AI-linked winners. That concentration has helped push indexes higher, but it could also leave the market more vulnerable if the chip trade starts to cool.

"It's super rare for an industry to get that large within the S&P 500," Todd Sohn, chief exchange-traded fund strategist at Strategas Securities, said in a phone interview. "Everything points to these moves being essentially extreme," he said, referring to the AI rally.

S&P Dow Jones Indices, the keeper for the S&P 500, announces quarterly rebalances of the index on the first Friday of the last month of every quarter, with the next announcement expected on June 5. In the last rebalancing announced on March 6, four changes were made, including the addition of two information technology companies, while none of the deletions were tech companies. S&P Dow Jones Indices did not immediately respond to a request for comment.

In addition to carrying such a heavy weighting in the index, many semiconductor stocks are also trading near their historic extremes relative to important trend lines like the 200-day moving average.

That is another important reason the rally is starting to look stretched, Sohn said.

There is one important metric, however, that hasn't moved much as the rally has continued to rip higher: While prices have climbed, forward price-to-earnings ratios for semiconductors have hardly budged. The forward P/E ratio for the PHLX Semiconductor Index SOX currently stands at around 26.5, only slightly above its 2025 year-end average of 26, according to Dow Jones Market Data.

Just because there are signs that the rally is looking stretched does not mean it is about to end, Sohn noted. In the past, periods of extreme concentration have at times persisted for years. And this time around, investors can point to strong earnings growth to help justify the torrid surge in prices.

Regardless of an investor's near-term view, now would be a good time for investors to take a beat and make sure they really understand what is "under the hood" in their portfolios, Sohn said. They may find that their exposure to the AI theme has reached an uncomfortable level.

-Frances Yue

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 13, 2026 10:59 ET (14:59 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.