Over the past few years, big tech stocks have had an outsize impact on the value of the S&P 500. Innovations and investments in artificial intelligence (AI) have been a major factor over the last two years, favoring the biggest companies with cash to spend. As a result, the big have gotten bigger.
And there’s good reason for that. Investors expect all the AI spending to pay off over the long run with faster earnings growth, and they have bid up the prices of these big spenders based on high expectations for the future. Meanwhile, those without the capital to invest as much in AI, or who simply aren’t as directly affected by AI innovations, haven’t seen their valuation climb to the same extent.
But one indicator suggests the recent trend of the biggest companies getting bigger at a pace that far exceeds the rest of the market could be coming to an end soon. And there’s a great way you can invest to take advantage of the next leg up in the stock market.
This post originally appeared at The Motley Fool.