AI Boom Fuels Market Gains, But Megacap Dominance Raises Red Flags

With the index trading at a forward P/E of 22, valuations suggest perfection is already priced in, leaving the market vulnerable to setbacks from any number of catalysts.

The market’s biggest risk lies in its top-heavy structure. High-quality companies in the S&P 500 trade at a record premium, with megacaps attracting flows as investors seek safety. Tech giants, particularly Nvidia—which now makes up about 8% of the index and has surged over 400% in the past three years—drive much of the rally, leaving the market vulnerable if these leaders falter.