Beyond the Magnificent Seven: Unlocking Value in a Concentrated Stock Market

Key Takeaways

• The top 10 US stocks now account for over one-third of the market, up from 18% a decade ago.
• Concentration risk is rising, making portfolios more vulnerable to shocks in a few dominant names.
• US small caps and international equities offer better valuations and more diverse return drivers.

The US market has been carried by seven mega-cap stocks in recent years, delivering strong returns—but that concentration comes with a hidden cost: less diversification and greater risk.

This concentrated group of mega-cap stocks known as ‘The Magnificent Seven’ (or Mag 7)—Apple APPL, Microsoft MSFT, Amazon AMZN, Alphabet GOOGL, Tesla TSLA, Nvidia NVDA, and Meta META—have done wonders for US returns, but it also masks uneven participation beneath the surface. When a handful of stocks does most of the heavy lifting, portfolios tied to broad benchmarks can become less diversified than they appear: creating exposure to only a few business models, sectors, and factor profiles, which quietly dominate overall risk.

The top 10 US stocks now account for roughly 35% of the overall market, up from just 18% a decade ago.

Such narrow market leadership creates vulnerability. If any of these leaders stumble—whether due to earnings misses, regulatory changes, or other shocks—broad index performance can quickly reset, erasing hard-won gains. In such environments, investors should consider diversifying beyond the dominant names.

Below, we look at past periods of market concentration and highlight opportunities for investing beyond the ‘Mag 7′.

What History Says About Stock Market Concentration

Periods of market concentration don’t always end in a selloff, but narrow leadership can precede weaker returns. The dot-com bubble is perhaps the clearest example. Between 1997 and 2000, the share of US market capitalization held by the 10 largest stocks surged to 24% from 15%, driven by soaring valuations in technology names like Microsoft, Cisco CSCO, Intel INTC, AOL, and Yahoo. But when profit expectations failed to materialize and capital dried up, sentiment turned sharply, wiping out trillions in market value and exposing how fragile the rally had been beneath the surface.

However, concentration is an imperfect guide to future returns. The Global Financial Crisis, for instance, was not preceded by narrowing market leadership. Instead, leverage and credit excesses were the culprits. The experience of the past decade also points to the pitfalls of ‘timing the market’ based solely on concentration. The weighting of the 10 largest stocks in the index has risen steadily since 2015, surpassing the dot-com peak by late 2020. Yet an investor who stepped aside then would have missed several years of exceptional gains, notwithstanding a brief setback during the inflation-driven selloff of 2022.

Regardless, we think investors should be mindful of how much of their wealth depends on a single theme or group of stocks. When the bulk of market gains are driven by just a few large names, portfolios become more exposed to common risks. Even if concentration doesn’t guarantee a downturn, it erodes diversification benefits and makes markets more vulnerable to sentiment reversals.

Diversification remains the only “free lunch” in investing. In an environment where a few stocks set the tone for the entire market, maintaining exposure across sectors, regions, and styles is one of the few dependable ways to manage risk—and to capture opportunities if leadership broadens out again.

Investment Opportunities Beyond the Magnificent Seven

Today, pockets of opportunity exist both inside and outside the US. We continue to favor US small caps, which have meaningfully lagged their large-cap counterparts over the past several years and trade at much cheaper valuations.

From a sector perspective, US health care stands out as an opportunity in an environment where most sectors appear fully valued.

Entering the year, many of our favorite opportunities lied outside the US, and 2025 has provided validation for international diversification. Through Oct. 31, the Morningstar Global Markets xUS Index has outperformed the Morningstar US Market Index by 10.6% in US dollar terms. Despite strong recent performance in non-US equities, many areas remain attractive. Emerging markets offer further potential upside, with Brazil, China, and Mexico standing out. Within developed markets, the United Kingdom and continental Europe trade at reasonable valuations. Not all European countries are equally attractive, however. Our stock-level analysis shows that Denmark, France, Portugal, and the Netherlands are the most undervalued, while Spain, Italy, and Belgium are relatively overvalued.

There Is Upside to Stocks’ Fair Value Estimates

It’s impossible to ignore US stocks, as they have led the way in terms of returns for the last number of years and constitute around 70% of the global equity market. That said, the importance of diversification can’t be over-emphasized, particularly when concentration is so high, and dependent on a single theme for much of its returns.

We believe investors should embrace opportunities, both inside and outside of the US, taking advantage of more attractive valuations, while simultaneously reducing their dependence on the concentrated bet that is the Mag 7. Small cap US stocks, emerging markets, and European markets are all good options right now.