Technology stocks are performing like never before in the S&P 500, and it's hard to say they will dominate in the future.

At the close of trading on Tuesday, the S&P 500 information technology sector, along with Amazon (AMZN.O), Tesla (TSLA.O), Alphabet (GOOGL.O), and Meta Platforms (META.O), reached a record high of 47.33% in the S&P 500 index. According to data from DowJonesMarketData (DowJonesMarketData), the weight of these tech giants has risen steadily from 44.57% a month ago.

The index's weight depends on the company's market capitalization, so as investors invest in stocks they think will benefit from the rise of artificial intelligence, the index's overall weight also rises. According to Goldman Sachs (GS.N), over the next few years, tech companies and companies in other sectors of the economy will invest more than $1 trillion in artificial intelligence to automate jobs, increase productivity, and reallocate labor to other tasks, thereby creating new opportunities.

The 18% increase in the market so far in 2024 is almost entirely due to confidence in artificial intelligence and expectations that the Federal Reserve will lower interest rates after winning the fight against inflation.

Nicholas Colas (Nicholas), co-founder of DataTrekResearch, said in a report on Wednesday that out of 130 trading days so far in 2024, only 14 trading days account for the total increase in the S&P 500 index so far this year. In these days, every day directly proved to investors that generative artificial intelligence is the next big thing, or provided evidence that the Federal Reserve will cut interest rates, or both.

“There will probably be more 'days that determine the whole year' over the next few months, and we expect them to have the same catalyst as those days in the first half of the year.”

Mid-year market outlook reports, including Citigroup (C.N) reports, also highlight artificial intelligence as a factor in maintaining the S&P 500 bullish run. Big tech companies are likely to remain the main drivers of second-quarter profit growth, according to the mid-year update report released by Barclays (BCS.N) on Wednesday.

Investors need an advantage in technology stocks, and the sector's huge weight in the S&P 500 index means that investors who just want to track overall market gains are seriously locked in. This means that so far this year, at least for those looking to make money in the short to medium term, it is impossible to gamble on this sector.

Without stocks in the IT sector, plus Amazon, Tesla, Alphabet, and Meta, the S&P 500 index would lose 5.6 billion dollars in market value by 2024.

However, we should at least be skeptical about the dominance of technology stocks in the S&P 500 index and the future returns of artificial intelligence. Despite widespread optimism — Goldman Sachs released a 32-page report about two weeks ago stating that artificial intelligence still has more room for development — the market's high concentration on technology stocks has raised investors' concerns about the industry's risk exposure and vulnerability.

Artificial intelligence experiments depend on the financial strength of the company behind it. The boom in integrating artificial intelligence into services and products is being funded at least in part by strong corporate profits, so a recession will hurt profits and slow the pace of investment. Moreover, investors are still likely to overestimate the future impact of artificial intelligence on various industries.

Investors' enthusiasm is likely to reverse, which highlights the need for investors to diversify their portfolios and balance risk exposure across all types of assets, especially when the S&P 500 index is likely to be more concentrated. It is true that betting on falling technology stocks has always been a failed move, but it is worth considering the risk of rotation, such as in 2022, when technology stocks fell out of favor, and sectors that had previously been overlooked, such as energy, suddenly became popular.