5 ms·

I found this the most interesting part of the whole essay - "the ten largest companies in the S&P 500 have so dominated net income growth in the last six years

by hnhg 1y ago

I found this the most interesting part of the whole essay - "the ten largest companies in the S&P 500 have so dominated net income growth in the last six years that it’s becoming more useful to think about an S&P 10 vs an S&P 490" - which then took me here: https://insight-public.sgmarkets.com/quant-motion-pictures/outside-of-the-top-10-stocks-sp500-forward-profits-haven-t-grown-in-three-years https://insight-public.sgmarkets.com/quant-motion-pictures/o... Can anyone shed light on what is going on between these two groups. I wasn't convinced by the rest of the argument in the article, and I would like something that didn't just rely on "AI" as an explanation.

rogerkirkness 1y ago
Winner takes most is now true at the global economy level.
moi2388 1y ago
They are 40% of the S&P 500, so it makes sense that they are primary drivers of its growth. They are also all tech companies, which had a really amazing run during Covid. They also resemble companies with growth potential, whereas other companies such as P&G or Walmart might’ve saturated their market already
- andsoitis 1y ago
  > They are also all tech companies, which had a really amazing run during Covid. Only 8 out of the 10 are. Berkshire and JP Morgan are not. It is also arguable whether Tesla is a tech company or whether it is a car company.
  - ahmeneeroe-v2 1y ago
    Berkshire holds ~$60B+ of Apple and is also exposed to AI through its power-utility arm, Berkshire Hathaway Energy.
    - andsoitis 1y ago
      > Berkshire holds ~$60B+ of Apple and is also exposed to AI through its power-utility arm, Berkshire Hathaway Energy. Apple is 22% of BRK’s holdings. The next biggest of their investments are Amex, BoA, Coke, Chevron. They are not a tech company.
      - ahmeneeroe-v2 1y ago
        BRK has significant AI exposure through both Apple and Berkshire Hathaway Energy. So while they are not a tech company, they have more exposure to the AI boom than basically any other non-tech company.
nowayno583 1y ago
It is a very complex phenomenon, with no single driving force. The usual culprit is uncertainty, which itself can have a ton of root causes (say, tariffs changing every few weeks, or higher inflation due to government subsidies). In more uncertain scenarios small companies can't take risks as well as big companies. The last 2 years have seen AI, which is a large risk these big companies invested in, pay off. But due to uncertainty smallish companies couldn't capitalize. But that's only one possible explanation!
- automatic6131 1y ago
  > The last 2 years have seen AI, which is a large risk these big companies invested in, pay off LOL. It's paying off right now, because There Is No Alternative. But at some point, the companies and investors are going to want to make back these hundreds of billions. And the only people making money are Nvidia, and sort-of Microsoft through selling more Azure. Once it becomes clear that there's no trillion dollar industry in cheating-at-homework-for-schoolkids, and nvidia stop selling more in year X than X-1, very quickly will people realize that the last 2 years have been a massive bubble.
  - nowayno583 1y ago
    That's a very out of the money view! If you are right you could make some very good money!
    - automatic6131 1y ago
      No as you and I both know - I can't. Because it's a qualitative view, and not a quantitative one. I would need to know _when_, quite precisely, I will turn out to be right. And I don't know, because I have about 60 minutes a week to think about this, and also good quantitative market analysis is really hard. So whilst it may sound like a good reposte to go "wow, I bet you make so much money shorting!" knowing that I don't and can't, it's also facile. Because I don't mind if I'm right in 12, 24 or 60 months. Fwiw, I thought I'd be right in 12 months, 12 months ago. Oops. Good thing I didn't attempt to "make money" in an endeavor where the upside is 100% of your wager, and the downside theoretically infinite.
foolswisdom 1y ago
The primary goal of big companies is (/has become) maintaining market dominance, but this doesn't always translate to a well run business with great profits, it depends on internal and external factors. Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable.
- andsoitis 1y ago
  > Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable. If you’re referencing Trump’s tariffs, they have only come into effect now, so the economic effects will be felt in the months and years ahead.
whitej125 1y ago
That which might be of additional interest... look at how the top 10 of the S&P 500 has changed over the decades[1]. At any point in time the world thinks that those top 10 are unstoppable. In the 90's and early 00's... GE was unstoppable and the executive world was filled with acolytes of Jack Welch. Yet here we are. Five years ago I think a lot of us saw Apple and Google and Microsoft as unstoppable. But 5-10 years from now I bet you we'll see new logos in the top 10. NVDA is already there. Is Apple going to continue dominance or go the way of Sony? Is the business model of the internet changing such that Google can't react quick enough. Will OpenAI go public (or any foundational model player). I don't know what the future will be but I'm pretty sure it will be different. [1] https://www.visualcapitalist.com/ranked-the-largest-sp-500-companies-over-time-1985-2024/ https://www.visualcapitalist.com/ranked-the-largest-sp-500-c...
- onlyrealcuzzo 1y ago
  There was always some subset of the S&P that mattered way more than the rest, just like the S&P matters way more than the Russel. Typically, you probably need to go down to the S&P 25 rather than the S&P 10.
k-i-r-t-h-i 1y ago
power law explains the distribution, but the distribution is getting more extreme over the years, likely due to (market structure, macro conditions, tech economics, etc)
atleastoptimal 1y ago
People have more room to buy more digital goods. There's far less room to buy more physical goods. People aren't going to double their stomach size to eat more McDonalds, but there's no limit to how much more data, software or AI tokens a person could require.

by hnhg 1y ago

rogerkirkness 1y ago

Winner takes most is now true at the global economy level.

moi2388 1y ago

They are 40% of the S&P 500, so it makes sense that they are primary drivers of its growth. They are also all tech companies, which had a really amazing run during Covid. They also resemble companies with growth potential, whereas other companies such as P&G or Walmart might’ve saturated their market already

andsoitis 1y ago
> They are also all tech companies, which had a really amazing run during Covid. Only 8 out of the 10 are. Berkshire and JP Morgan are not. It is also arguable whether Tesla is a tech company or whether it is a car company.
- ahmeneeroe-v2 1y ago
  Berkshire holds ~$60B+ of Apple and is also exposed to AI through its power-utility arm, Berkshire Hathaway Energy.
  - andsoitis 1y ago
    > Berkshire holds ~$60B+ of Apple and is also exposed to AI through its power-utility arm, Berkshire Hathaway Energy. Apple is 22% of BRK’s holdings. The next biggest of their investments are Amex, BoA, Coke, Chevron. They are not a tech company.
    - ahmeneeroe-v2 1y ago
      BRK has significant AI exposure through both Apple and Berkshire Hathaway Energy. So while they are not a tech company, they have more exposure to the AI boom than basically any other non-tech company.

nowayno583 1y ago

It is a very complex phenomenon, with no single driving force. The usual culprit is uncertainty, which itself can have a ton of root causes (say, tariffs changing every few weeks, or higher inflation due to government subsidies). In more uncertain scenarios small companies can't take risks as well as big companies. The last 2 years have seen AI, which is a large risk these big companies invested in, pay off. But due to uncertainty smallish companies couldn't capitalize. But that's only one possible explanation!

automatic6131 1y ago
> The last 2 years have seen AI, which is a large risk these big companies invested in, pay off LOL. It's paying off right now, because There Is No Alternative. But at some point, the companies and investors are going to want to make back these hundreds of billions. And the only people making money are Nvidia, and sort-of Microsoft through selling more Azure. Once it becomes clear that there's no trillion dollar industry in cheating-at-homework-for-schoolkids, and nvidia stop selling more in year X than X-1, very quickly will people realize that the last 2 years have been a massive bubble.
- nowayno583 1y ago
  That's a very out of the money view! If you are right you could make some very good money!
  - automatic6131 1y ago
    No as you and I both know - I can't. Because it's a qualitative view, and not a quantitative one. I would need to know _when_, quite precisely, I will turn out to be right. And I don't know, because I have about 60 minutes a week to think about this, and also good quantitative market analysis is really hard. So whilst it may sound like a good reposte to go "wow, I bet you make so much money shorting!" knowing that I don't and can't, it's also facile. Because I don't mind if I'm right in 12, 24 or 60 months. Fwiw, I thought I'd be right in 12 months, 12 months ago. Oops. Good thing I didn't attempt to "make money" in an endeavor where the upside is 100% of your wager, and the downside theoretically infinite.

foolswisdom 1y ago

The primary goal of big companies is (/has become) maintaining market dominance, but this doesn't always translate to a well run business with great profits, it depends on internal and external factors. Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable.

andsoitis 1y ago
> Maybe profits should have actually gone down due to tarrifs and uncertainty but the big companies have kept profit stable. If you’re referencing Trump’s tariffs, they have only come into effect now, so the economic effects will be felt in the months and years ahead.

whitej125 1y ago

That which might be of additional interest... look at how the top 10 of the S&P 500 has changed over the decades[1]. At any point in time the world thinks that those top 10 are unstoppable. In the 90's and early 00's... GE was unstoppable and the executive world was filled with acolytes of Jack Welch. Yet here we are. Five years ago I think a lot of us saw Apple and Google and Microsoft as unstoppable. But 5-10 years from now I bet you we'll see new logos in the top 10. NVDA is already there. Is Apple going to continue dominance or go the way of Sony? Is the business model of the internet changing such that Google can't react quick enough. Will OpenAI go public (or any foundational model player). I don't know what the future will be but I'm pretty sure it will be different. [1] https://www.visualcapitalist.com/ranked-the-largest-sp-500-companies-over-time-1985-2024/ https://www.visualcapitalist.com/ranked-the-largest-sp-500-c...

onlyrealcuzzo 1y ago
There was always some subset of the S&P that mattered way more than the rest, just like the S&P matters way more than the Russel. Typically, you probably need to go down to the S&P 25 rather than the S&P 10.

k-i-r-t-h-i 1y ago

power law explains the distribution, but the distribution is getting more extreme over the years, likely due to (market structure, macro conditions, tech economics, etc)

atleastoptimal 1y ago

People have more room to buy more digital goods. There's far less room to buy more physical goods. People aren't going to double their stomach size to eat more McDonalds, but there's no limit to how much more data, software or AI tokens a person could require.