The stock market is getting very top-heavy

Are we setting ourselves up for another 90s dot-com market bust? A gap between the top ten S&P 500 stocks and the other 490 has some experts worried that investors are putting all their investment eggs into too tech-centric of a basket. 

Driving the news: A CIBC World Markets portfolio strategist says prices for the top ten stocks on the S&P 500 are in "nosebleed" territory, with brand name tech stocks trading at 29 times above their expected earnings. 

  • Investors are less enthusiastic about the remaining 490 stocks listed on the index, which are on average trading at about 16 times their expected earnings.

  • "Outside of the 10 largest stocks, the rest of U.S. equities are essentially in line with long-term valuation levels," Ian de Verteuil said. 

Why it's happening: Investors are flocking back into the tech sector, motivated by the recent AI boom.

  • Computer chip and graphics card manufacturer Nvidia saw its stock price triple in value over the past year, joining the top ten companies like Apple, Amazon, Tesla and Microsoft.

Why it matters: These gains have sparked FOMO, with investors driving valuations and stock prices of S&P giants higher. However, some experts liken the surge in AI stocks to the dot-com bubble of the 1990s, which ended in a market crash.

An affordable way to get a profitable piece of the tech stock pie, according to de Verteuil, may be to buy an equal-weight ETF (you own a little bit of all S&P 500 companies).

  • That way you’ll have some exposure to tech while staying diversified. 

What’s next: With central banks signalling that they aren’t done hiking rates, piling into pricey stocks is a risky bet.