INFORMATION TECHNOLOGY: Creative Destruction On Speed

We lowered the S&P 500 Information Technology and Communication Services sectors from overweight to market weight on December 7, 2025. We did so because the two sectors together accounted for 45% of the S&P 500's market capitalization (chart). We were also concerned about the mounting uncertainties regarding the rate of return on hyperscalers' massive AI investments.

Since then, investors have concluded that the hyperscalers are also profitable semiconductor companies. Amazon, Google, and Tesla have been moving in that direction for a while. AI uncertainties have been repressed by the two sectors' record-setting forward earnings, which together account for a record 42% share of S&P 500 forward earnings.