On the surface, this appears to be a welcome reduction in index concentration. But a closer look reveals more nuance. Semiconductor and semiconductor equipment companies now account for a whopping one-third of the Russell 1000 Growth—a jump from 24%—as high-flying memory stocks crossed over to the index from its value peer. In other words, concentration didn’t disappear, it just shifted.
New Look, Same Concentration
Semiconductors’ newfound prominence may appear logical, given the importance of chips, memory and equipment suppliers to the AI infrastructure build-out.
But now, not only do semiconductor and semiconductor-equipment stocks represent one-third of the index by market cap, they also account for nearly half of its beta—or overall market risk, as shown above. As a result, investors also inherited a benchmark with greater sensitivity to market swings relative to the S&P 500 than they might have expected. This risk was on full display in July when shares of some of the largest and most volatile memory companies dropped more than 25% in a single month
Meanwhile, index weights have been shifting within the technology sector. The rise of semiconductors coincides with a continuing decline in software stocks, which have been under pressure since February amid AI-disruption fears. Software’s weight in the Russell 1000 Growth has fallen from a peak of 20% in August 2025 to 9.3% in June 2026. Taken together, these trends mark a sea change in the market composition of technology companies.
Investors now face a new-look index with a familiar challenge: while market leadership has changed, a growing portion of benchmark performance hinges on a relatively small group of companies within a single industry.
Why does that matter? History shows that periods of extreme concentration can leave investors exposed to potentially abrupt shifts in market leadership, which can be detrimental to returns.
Passive Decisions May Be More Active Than You Think
After such a dramatic reconstitution, investors should ask a simple question: Just how passive is my passive index? Probably less than you think. The decision to reduce Magnificent Seven weights while materially increasing semiconductor exposure wasn’t made by millions of individual investors. It was the result of index methodology that determines which companies qualify for inclusion and how much influence they receive. In our view, index methodology and periodic reconstitutions can introduce an unexpectedly active element to an otherwise passive, index-tracking strategy.
Market-cap weighting—an important component of most major index methodologies—exacerbates this effect.
Most large, familiar benchmark indexes aren’t just neutral—but rather, rules-based—collections of stocks. In market cap–weighted indexes, stocks are given greater weighting as their market values rise. That approach may appear mechanical, but it still incorporates an active assumption that companies with soaring share prices deserve greater portfolio weight. In this way, market cap weighting can amplify the very concentration many passive investors may be trying to avoid—leaving passive, index-based portfolios tied to a narrower set of economic drivers and revenue pools.
When leadership is durable, this kind of methodology can work well. But when conditions shift, such as during the rise of a disruptive technology, passive investors may end up more exposed to yesterday’s winners than tomorrow’s growth prospects. We saw a similar benchmark leadership shift during the dot-com era, when dominant companies across healthcare, industrials and consumer sectors were eventually overshadowed by today’s technology giants.
Moreover, the recent “semi surge” assumes demand for chips, memory and networking infrastructure will remain robust for years to come. That may prove true. But if massive amounts of AI capex aren’t eventually converted into profits or demand for semiconductors flags, we believe investors could be in for a rough ride.
Semis Are Important, but So Is Diversification
As index concentration changes form, we believe investors should buck the trend and select stocks across a wide range of sectors and industries. As we see it, overloading on semiconductor shares could add risks that conflict with a diversified portfolio’s long-term strategy. The Magnificent Seven’s volatility illustrates how quickly market sentiment can turn, and our research shows that active equity strategies have performed well during periods when extreme market concentration unwinds (Display).
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