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It’s been a volatile year for the S&P 500, but the index as a whole is up around 15%. That’s not a bad result at all, but there are signs things are starting to look a bit dangerous.
So far in 2025, a handful of big technology companies have been carrying the rest of the index. But as concerned voices start to grow louder, could there be a crash on the way?
Concentration
Large parts of the US economy have been weak in 2025, but it hasn’t really mattered to the S&P 500. Artificial intelligence investment has been accelerating and that’s carried the index.
The reason is that the 10 companies collectively make up around 40% of the index. And all but two of them (Berkshire Hathaway and JP Morgan) are heavily involved in the growth of AI.
As a result, it hasn’t really mattered that things haven’t been going well elsewhere. Consumers might be under pressure, but AI spending has been carrying the day for the S&P 500.
The other side of that coin, though, is that if AI stocks fall sharply, it’s going to be hard for anything else to offset this. And there are increasing signs that this might happen.
AI risks
The risk for the share prices is if the market thinks the big investments being made in AI might not ultimately pay off. And investors are just starting to get nervous about this.
Michael Burry – of the Big Short Fame – has suggested that unrealistic assumptions about depreciation are making AI investments look more profitable. I thinks this is a real concern.
Burry doesn’t always get the timing right, but he’s very rarely wrong about what’s going on. And there’s also the issue of how OpenAI finances its $1.4trn spending commitments.
All of this makes the prospect of a crash more realistic. But – as always – I think there are some stocks that look interesting even when others might be under imminent pressure.
Nike
Weakness in consumer spending means it’s not been a good year for Nike (NYSE:NKE). But I do think the company has a strong long-term competitive position.
The firm lost its way a bit under previous management. And the resulting loss of market share illustrates the risks that come with operating in an industry where switching costs are low.
Despite the recent difficulties, the latest data from the Piper Sandler Teen Survey indicates that it’s still the number one brand with US teenagers. I think this is a very important sign.
A price-to-earnings (P/E) ratio of 33, makes the stock look expensive. But if that’s being inflated by artificially low earnings – as I think it is – the stock could be well worth a look.
Final Foolish thoughts
AI has been accounting for more and more of the S&P 500. And while the index as a whole might struggle to withstand a crash in this part of the market, it’s not the only game in town.
I think there are opportunities for long-term investors that are worth considering elsewhere. Nike is one example, but it’s not the only one by any means.
