The Math That Should Terrify Index Investors: AI Chips Account for Nearly All S&P 500 Gains

Removing AI infrastructure exposure from the S&P 500 reduces recent performance from about 42% to about 16% over roughly 22 months. The SPDR S&P 500 ETF Trust returned about 41% over the two years ending May 22, 2026, aligning with the framing. Market-cap weighting concentrates returns and risk in a small set of large AI-related companies. Top holdings illustrate this concentration, with NVIDIA, Microsoft, and Broadcom representing sizable portions of the index and even larger portions of the Nasdaq-focused QQQ. NVIDIA’s market capitalization and rapid revenue growth drive much of the index’s gains, while guidance changes and China-related exclusions highlight meaningful downside risk.

"If we removed the Nvidias, the AMDs, so AI chips, these are the chipmaking companies, the storage companies, and the companies that are facilitating AI that are publicly traded. And if we remove them from the S&P, the ones that are in that category, we had a 42% return on the S&P over the last 22 months. It goes down to about 16%."

"SPY's top holdings reveal the mechanism. NVIDIA is 8% of the index, Microsoft 5%, and Broadcom 3%. In the Invesco QQQ Trust, the concentration is more extreme: NVIDIA alone is 10%, Microsoft 9%, and Broadcom 6%. Market-cap weighting compounded the gains and now compounds the risk."

"NVIDIA sits at the center of the concentration story with a $5.22 trillion market capitalization. The fundamentals are extraordinary: Q1 FY2027 revenue of $81.6 billion, up 85% year over year, with Data Center networking growing 199%. CEO Jensen Huang told investors in the earnings release that "The buildout of AI factories, the largest infrastructure expansion in human history, is accelerating at extraordinary speed.""

"The risk profile is equally pointed. NVIDIA disclosed $119 billion in total supply commitments and Q2 FY2027 guidance now excludes all Data Center compute revenue from China. Reddit sentiment turned bearish on May 23-24, with scores between 30 and 41 despite the earnings beat, capturing the dynamic where strong results have stopped reliably moving the stock higher."

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