Yardeni ends 15-year bullish call on Magnificent 7 as concentration risks climb

Yardeni Research has scrapped its long-running overweight stance on the so-called Magnificent 7, warning that the dominance of America’s largest technology stocks has reached levels that are difficult to justify even with their strong earnings performance.

In a note dated December 7, the firm, founded by Wall Street veteran Ed Yardeni, said it now recommends underweighting the group — which includes Nvidia, Microsoft and Apple — and shifting focus to the “impressive 493” stocks that make up the rest of the S&P 500 index.

Yardeni, who has maintained an overweight recommendation on technology and communication services since 2010, said the success of these sectors had created a concentration imbalance that could expose investors to heightened risks.

‘Hard to recommend overweighting something already quite overweight’

Speaking on Bloomberg Podcasts, Yardeni said the surge in valuations had pushed information technology and communication services to a combined 45% share of the S&P 500’s market capitalisation — rising to nearly 50% as of Friday’s close, according to LSEG data.

That is the highest level since the dot-com era.

“The problem is it’s worked all too well,” Yardeni remarked. “Of course their earnings share has also increased, but nowhere near as far.”

He added that the United States now accounts for roughly 65% of global stock market capitalisation, making it increasingly difficult to argue for further overweight exposure.

“…it’s hard to recommend overweighting something that’s already quite overweight,” he said on the Podcasts.

“If you just tell people to maintain their current weight of the index, that would still be an overweight position relative to what most people would think would be a diversified portfolio,” he told Bloomberg Podcasts.

Increased competition threatens the tech giants’ high margins

Yardeni said one of the biggest shifts has been the acceleration of competition within the group itself and from emerging players in artificial intelligence.

He pointed to Google’s launch of Gemini 3 and the rapid progress of Chinese AI developer DeepSeek, whose lower-cost training methods and improving model performance could challenge the profitability of US tech leaders.

“The profit margins have been awfully high for the Magnificent 7. That usually invites a lot of competition, and that’s exactly what’s happening,” Yardeni said.

He noted that newer AI entrants are forcing established firms to innovate faster and spend more aggressively — potentially pressuring margins that had previously supported sky-high valuations.

Yardeni shifts toward financials, industrials and healthcare

As part of constructing an S&P 500 portfolio, Yardeni Research now recommends a ‘market-weight’ stance on technology and communication services.

Instead, it advises overweighting financials, industrials and healthcare sectors it believes are positioned to benefit from improving productivity and broader economic resilience.

Yardeni argues that companies outside the Magnificent 7 are increasingly harnessing advanced technologies, including AI, to lift efficiency and earnings, offering compelling opportunities across the remaining 493 stocks in the index.

“There are still plenty of good stocks out there of companies that are going to be using all these technologies, and are using all these technologies to increase their productivity and to increase their profit margins. So I think the broadening out of the portfolio from the magnificent seven to 493 would make sense to me,” he told Bloomberg Podcasts.

A shift after years of alignment with tech leadership

The downgrade marks a notable moment for Yardeni, who has long been associated with bullishness on US technology and is credited with coining the term “bond vigilantes” in the 1980s.

His firm’s reversal underscores growing debate on Wall Street about whether mega-cap tech valuations are sustainable amid intensifying competition and slowing growth in some areas.

While the Magnificent 7 remain foundational to the S&P 500’s performance, Yardeni believes the market will broaden in the coming years, with more companies adopting digital tools once exclusive to the biggest players.

In an interview with Invezz last year, Yardeni had suggested that the market will broaden within the S&P 500 from beyond the Magnificent 7 to the remaining 493.

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