The S&P 500 Is Dangerously Concentrated in 5 Tech Giants. Are They Still Buys?

The S&P 500 (SNPINDEX: ^GSPC) is no longer as balanced as it has been in the past, with the index's top five positions making up nearly 30% of its holdings. This is the most concentrated the S&P 500 has ever been, and these tech five stocks -- Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), and Amazon (NASDAQ: AMZN) -- will play a crucial role in the benchmark's performance, as well as in the performance of all the exchange-traded funds (ETFs), like the Vanguard S&P 500 ETF (NYSEMKT: VOO), that track it.

Let's see if these five tech stocks look like buys.

Image source: Getty Images.

Nvidia

Nvidia is the main arms dealer in the artificial intelligence (AI) infrastructure race, with its graphics processing units (GPUs) as the primary chips powering AI workloads. The company has a huge moat in AI model training, as most early AI code was written on its CUDA software platform for its chips. Meanwhile, over the years, it has evolved into a comprehensive AI infrastructure player that offers end-to-end solutions for specific AI tasks, including training, inference, and agentic AI.

Wherever AI infrastructure spending goes, Nvidia is sure to follow, given its market position. With spending predicted to continue to soar and the stock cheap, with under a 14.5 times forward P/E based on fiscal 2028 (ending January), Nvidia remains a buy.

Apple

Apple has one of the best business models on the planet, as its ecosystem locks in customers and keeps them there. While its hardware, like the iPhone and MacBook, is the draw, it generates a lot of high-margin service revenue from selling cloud storage, commissions on apps and subscriptions, getting a small cut on transactions through Apple Pay, and through its revenue-sharing deal with Alphabet to allow Google to be the default search engine on its devices.

At 35 times forward P/E, the stock is a bit pricey, which could limit upside, but investors are getting a great compounding company that should perform well over the long term.

Microsoft

Microsoft is a leading cloud computing and enterprise productivity software-as-a-service (SaaS) company that also owns 27% of ChatGPT maker OpenAI. Its Azure cloud unit has shown consistent, rapid growth of more than 30% each quarter over the past three years, while it has a huge computing backlog of $678 billion anchored by commitments from OpenAI.

At the same time, given how entrenched its software is in the enterprise space, it's also becoming an AI software winner. It's seeing strong adoption of its AI assistant, Copilot, with paid users nearly doubling sequentially last quarter to 30 million seats. With the company firing on all cylinders, the stock looks reasonably valued, trading at 27 times fiscal 2027 analyst estimates (ending in June 2027) and just above 22.5 times fiscal 2028 consensus estimates.

Alphabet

While best known for Google Search, Alphabet is the most complete AI name, having both its own top-tier AI model and chips. Its chips business is a real differentiator. It allows Alphabet to train and run inference for its AI models more cheaply than competitors do, while its cloud unit achieves a one-year payback on its AI chip and networking investments when it uses its own chips. On top of that, it has started letting partner Broadcom sell directly to Anthropic, which has opened up another high-margin revenue stream for it.

Trading at a forward P/E of 23 times 2027 analyst estimates, the stock looks attractively valued given its growth and position in the market. I'd buy the stock.

Amazon

Amazon is the market share leader in both cloud computing and e-commerce. Its cloud business is accelerating, and the company thinks this could eventually become a $1 trillion revenue business. It's investing aggressively and has a huge backlog, with backing from Anthropic and OpenAI. It also has an emerging chip business.

On the e-commerce side, the company has been seeing strong operating leverage stemming from its investments in robots, automation, and AI. The company does not get nearly the credit it deserves in this area, in my view, while it's also become one of the world's leading digital ad platforms.

At a forward P/E of 25 times based on 2027 estimates, Amazon is trading at a historically attractive valuation, making it a buy.

The S&P 500 and VOO

While the S&P 500 and ETFs like VOO are now highly concentrated, I still see attractive valuations and strong upside potential in four of the index's top five stocks. Apple is the lone exception; I see it as a little pricey, but it is still one of the world's great compounding businesses, and the stock will work over time.

As such, I wouldn't be too worried about the S&P 500's high concentration levels at this point and would continue to be a buyer of VOO, as well.

Geoffrey Seiler has positions in Alphabet, Amazon, Broadcom, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.