The S&P 500 just did something it’s only done once in history, and it could signal a big move in the stock market

of S&P 500 (^GSPC -0.41%) he passed S&P 500 Equal Weight Index by more than 10% during the first half of the year, something that has only happened once before. A handful of artificial intelligence (AI) companies were responsible. The companies in question have become so large that they affect the performance of the index to a significant degree.

Specifically, Nvidia alone has contributed 30% of the S&P 500’s year-to-date gains. Except this, Microsoft, AmazonAND Alphabet have collectively contributed 26% of profits, and Apple AND Meta Platforms have collectively contributed 11% of profits. In short, six companies drove two-thirds of the gains in the S&P 500 through June.

Some analysts have described that phenomenon as a stock market bubble, and they have expressed concern that the growing influence of some AI companies could lead to a dot-com-style crash. But history suggests that the S&P 500’s rising concentration can be a good thing.

In the past, when the S&P 500 has outperformed its equal-weighted peer during the first half of the year, the index has typically generated outstanding returns over the next 12 months. Here’s what investors need to know.

History says the S&P 500 could return 18% through June 2025

The S&P 500 tracks 500 large US companies. The index is weighted by market capitalization, meaning that larger companies influence its performance to a greater degree. The S&P 500 Equal Weight Index (EWI) tracks the same 500 companies, but its equally weighted components affect performance to the same degree. The S&P 500 EWI was created in 2003, but back-tested values ​​begin in 1971.

Since then, the S&P 500 has outperformed its equal-weighted counterpart during the first half of the year 16 times. Even more rarely, the S&P 500 has outperformed by more than 10% twice. This happened most recently in the first half of 2024, when the S&P 500 returned 14.5% and the S&P 500 EWI returned 4.1%. But this incident can hardly be compared to the previous one in 1973.

To elaborate, the S&P 500 and the S&P 500 EWI fell sharply in the first half of 1973. The S&P 500 simply fell less sharply, outperforming by 10.7%. This differs from the current situation because both indices have moved higher in 2024. So investors should not compare those two events in isolation.

Instead, it makes more sense to examine each year in which the S&P 500 beat the S&P 500 EWI during the first half. The chart below accomplishes this. It shows the degree of outperformance of the S&P 500 in the first half and shows the return of the S&P 500 over the next 12 months.

Data source: YCharts.

As shown, when the S&P 500 outperformed its equal-weighted counterpart during the first half of the year, it returned an average of 17.9% over the trailing 12 months. Past performance is never a guarantee of future results, but history implies significant gains in the S&P 500 — nearly 18% — through June 2025.

AI stocks are not in a dot-like bubble

Some analysts have described the recent surge in artificial intelligence stocks, particularly chipmaker Nvidia, as a “stock market bubble.” Some have even compared the current market environment to the dot-com bubble, an event that ultimately ripped the tech sector to shreds.

Neil Shearing at Capital Economics recently said: “The enthusiasm around AI has all the hallmarks of a bursting bubble.” Colleagues Diana Iovanel and James Reilly added: “We suspect the bubble will eventually burst beyond the end of next year, causing a correction in valuations. After all, this dynamic emerged around the dot-com bubble of the late 1990s and the early 2000s. and the Great Crash of 1929”.

Investors should avoid thinking along these lines. The current environment—that is, the AI ​​euphoria that has arisen since ChatGPT’s inception—bears only a superficial resemblance to the dot-com bubble. There are two important differences.

First, heavy technology Nasdaq-100 it rose 270% over the 18 months leading up to March 2000. At that point, the index reversed course and fell 80% in about two years. This differs dramatically from the recent AI-fueled rally. The Nasdaq-100 has only advanced 80% over the past 18 months.

Second, the seven largest Nasdaq-100 stocks traded at an average valuation of 80 times earnings in March 2000, according to Capital Group. Again, this differs dramatically from the current situation. The seven largest Nasdaq-100 stocks currently trade at an average valuation of 46 times earnings.

I’m not saying that every AI stock is fairly valued, nor am I saying that the excitement surrounding AI will drive the stock market higher indefinitely. Technology often follows Gartner The Hype Cycle, which states that (1) irrational excitement initially pushes stocks too high, (2) irrational pessimism then drags stocks too low, and (3) reasonable expectations ultimately set stocks on a gradual upward trajectory.

Here’s the bottom line: History says the S&P 500 will advance 18% over the next year, but there’s no guarantee that will happen. Wall Street could be disappointed with AI stocks tomorrow, and the S&P 500 could fall sharply if other concerns, such as valuations or the economy, steal the focus.

However, regardless of which way the winds blow in the coming months, I do not believe that the current market environment is similar to the dot-com bubble. And AI is not an overcrowded phenomenon destined to disappoint. Instead, it will create tremendous wealth for patient investors. To quote UBS analysts, “AI will be the most profound innovation and one of the greatest investment opportunities in human history.”

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Gartner and recommends the following options: long January 2026 $395 Microsoft calls and short January 2026 $405 Microsoft calls. The Motley Fool has a disclosure policy.