The Stock Market's Biggest Companies Are Losing Their Grip. Here's the ETF I'd Buy If History Repeats.

For the past few years, investors could hardly go wrong simply putting their money into the economy's biggest companies. The Magnificent Seven stocks -- Nvidia, Microsoft, Apple, Amazon, Meta Platforms, Alphabet, and Tesla -- were almost single-handedly pulling the S&P 500 higher, and investors consistently chased them.

This year has been a different story. The Roundhill Magnificent Seven ETF is up 6% year to date, but it trails the 12% return of the Vanguard S&P 500 ETF and the 27% return of the Vanguard Information Technology ETF.

I see two factors in particular having changed this year.

Image source: Getty Images.

Two things have caused the market to rotate away from mega-cap tech

From 2023 to 2025, investors bought the biggest and earliest winners from the artificial intelligence (AI) trade. That's no longer the case.

The first reason we've seen a rotation is that investors are recognizing the next wave of winners from the AI trade. Semiconductor manufacturers, such as Micron Technology, Advanced Micro Devices, and Intel, have generated huge returns as the producers of this core AI technology.

Memory stocks like Micron, Samsung Electronics, and SK Hynix had a strong run earlier this year. Most recently, cybersecurity stocks have drawn interest as the market starts considering a potential AI development slowdown.

Investors have simply targeted what they perceive as the "next" beneficiary of this trade.

The second reason is that investors have been favoring value stocks. At the beginning of the year, the market was expecting rate cuts. Now, we may see multiple rate hikes over the next six to 12 months. Higher interest rates mean that investors are generally less willing to pay high valuations for stocks. The Magnificent Seven names have fallen victim to this trend.

The ETF I'd buy now instead

If the market continues rotating away from mega-cap tech, the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) becomes an ideal way to play it. Investors maintain their large-cap exposure overall, but they also:

• Reduce the index's top-heavy concentration
• Pick up a value tilt on the S&P 500
• Add exposure to the more defensive sectors and smaller companies that have been leading the market

Most of the S&P 500, total stock market, growth, and tech ETFs today all share similar top-heavy exposure to mega-cap companies. The Invesco S&P 500 Equal Weight ETF helps diversify away from this concentration risk and gives other companies the opportunity to have more influence on a portfolio.

Market rotations are entirely normal. Historically, there have been extended periods where small-caps, international stocks, and other asset classes outperform. After several years of mega-cap leadership, this could be the beginning of a new cycle of market leadership.

David Dierking has positions in Apple and Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Intel, Meta Platforms, Micron Technology, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.