S&P 500 return concentration reaches a historic high

In the past five years, each year, many people have mentioned that the returns in the US stock market are concentrated in a few companies. Due to the market’s cyclical nature, every year some people also believe it will return to normal levels. However, they have all been wrong. This year, the AI boom has pushed the concentration of US stock returns to an even more extreme level. Data from the chart shows that so far this year, only 16.9% of companies have contributed 80% of the S&P 500's total return, surpassing the concentration seen during the internet bubble era.From a fundamental perspective, this can be explained by:1) The scale of growth in AI demand (for example, memory demand has increased by 400% in just over a year).2) Insufficient supply due to capacity shortages and the fact that it takes years to build new capacity, leading to further price increases.3) Cash-rich, ultra-large-scale companies like Amazon, Microsoft, and Google have significantly increased capital expenditures.As a user, I believe AI can generate widespread social impact, leading to a significant boost in productivity. However, during each phase of such transformational periods, many investors seem to lose sight of history. When people say “this time is different,” it doesn’t mean history follows the same path, but rather that in the process, human nature never changes—human nature is always driven by greed and fear.This also means that when confronted with complex and rapidly developing technological shifts, many investors turn to trend following, each hoping not to be the last one holding the bag.Data source: FactSet, 22VResearch