It's not just the S&P 500 that is narrowing, there is a stark divergence even within the Semiconductor industry.
The SOX is a modified cap-weighted index for semis, while the ESOX is an equal-weighted version of the same stocks (begins Nov 2021).
Since ESOX inception:
SOX +55% total return (12.5% annualized)
ESOX +0.7% total return (0.2% annualized)
Fundamentals (profit margins) have also widely diverged, as shown in the charts below, roughly aligning with the relative performance trends.
Our margin data (using consensus next-12-month forecasted profit margins) is based on a broader all-cap universe of US semiconductor stocks (using GICS classifications), and shows that after moving together until about 2022, profit margins for mega-cap Semis (esp. NVDA) reflected in the cap-weighted readigns soared, while the majority of the industry (median) saw margins fall and remain relatively low vs historical norms.
So the Tech/AI boom is clearly not helping all, or even most, Semi companies and may in fact be driving the "winner take all" divergence within the industry that leaves all but a few firms struggling for the scraps from the quasi-monopoly mega-caps.
