U.S. Market Concentration - The Great Divergence (2007–2025)

‍Introduction

This analysis examines how U.S. equity market concentration has evolved over the past 18 years using Sismo’s dynamic universes. By ranking all listed U.S. companies by market capitalization at each date, we can observe how the average size of firms in each segment has changed and how the dominance of the largest players has intensified - particularly since the acceleration of the AI revolution in 2023.

The analysis tracks the evolution of average market capitalization across four dynamic groups of U.S. stocks between October 2007 and October 2025:
(1) ranks 1–20   (2) ranks 21–100  (3) ranks 101–1000  (4) ranks 1001–2000.

Each group is rebalanced monthly by market-cap rank and rebased to 100 in October 2007.

The top chart shows the evolution of each group’s average market capitalization.
The bottom chart shows each group’s “distance” to the 1001–2000 segment – how the gap in average market capitalization has changed relative to October 2007.

For example, today the Top-20 reads 314 in the bottom chart, meaning their average market capitalization has grown 3.14 × faster than that of the 1001–2000 segment since 2007.

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Key patterns

• 2008: During the Financial Crisis, the Top-20 and 21–100 resist better, with a gap 40 % larger than in 2007.
• 2013–2015: The gap reverses (≈ –15 %) as small caps outperform.
• 2015–2018: Gap stable near its baseline.
• 2020: COVID widens the gap (+60 % in April, +76 % in August), then compresses (+20 % in March 2021) before widening again.
• 2023 onward: After ChatGPT’s release, the Top-20 detach structurally, led by Nvidia and the broader AI revolution.

The ratio of the average market capitalizations of groups 2 and 3 is almost unchanged from 2007 (+8.5 %), confirming that the concentration story is essentially a Top-20 phenomenon.

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Implications for investors

The surge in concentration forces a rethink of diversification, valuation, and portfolio risk.
Insights from Goldman Sachs’ Market Concentration: How Big a Worry? (2024) highlight several key points:

1. Higher portfolio volatility
   Fewer leaders mean weaker diversification and larger drawdowns when leadership rotates.
2. Valuation risk matters more
   Mega-caps often trade at negative risk premia: investors accept lower expected returns for perceived safety and growth.
   As Owen Lamont (Acadian Asset Management) notes: “If you want to worry about something, worry about the overvaluation of big growth stocks, not concentration.”
3. Concentration ≠ market risk
   The U.S. market in the 1950s—when IBM, AT&T and GM made up nearly 30 % of total capitalization—was arguably safer.
   Market-level risk depends on fundamentals and valuations, not on concentration alone.
4. Hidden factor drifts
   When leadership narrows, benchmark-neutral portfolios become unintentionally tilted toward growth and momentum while losing exposure to value and cyclicality.
   Active managers must track these shifts to understand the true sources of risk and return.
5. AI as a structural amplifier
   From 2023 on, scale advantages in data and computation entrench the leaders, widening a gap that began fifteen years ago.

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Bottom line

U.S. equities have risen sharply overall, but leadership has changed.
The Top-20 have accelerated far beyond the rest, while the broader market has expanded without major reshuffling below that line.
Whether this gap keeps widening or mean-reverts will shape the next decade of active management and redefine diversification itself.

Data: Sismo dynamic universes built on S&P Capital IQ global equity coverage. Analysis as of October 2025.

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Further reading

• The rise of superstar firms in the United States: The role of intangible capital
  Research in International Business and Finance (2024)
  
• Market Concentration: How Big a Worry?
  Goldman Sachs Global Investment Research – Top of Mind (2024)
  
• Markets in Focus: The price of U.S. exceptionalism
  MSCI Research Blog (2024)
  

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