Outside of the top stocks, S&P 500 forward profits haven't grown in 3 years

Methodology and Interpretation of the Chart

• Several commenters criticize the use of forward net income estimates, arguing that it’s backward-looking in practice and suggest using realized earnings or EPS instead.
• The 3-year window is questioned: why stop there, and what about the intervening decades between the 1960s–70s and now?
• Some note the chart is effectively showing a PE spread between the top 10 and the rest, and could be reframed that way.
• One person finds the result not very surprising, pointing out that investor returns don’t require constant profit growth.

AI Boom, Mega-Cap Concentration, and “Recirculation”

• Several link the post‑2023 explosion in top‑10 profits to the AI wave (e.g., GPT‑4), with Nvidia as the big capital sink and hyperscalers buying its chips.
• A recurring thesis: much of the profit is “recirculated” among a tight loop of big tech firms rather than broad new consumer value.
• Others push back, noting companies like Meta have genuinely doubled profits via advertising tied to the “real economy.” Skepticism remains about how much of that spend is durable or productive.

Capitalism, Inequality, and Winners-Take-Most Dynamics

• Some see this concentration as inherent to capitalism’s “money → commodities → more money” logic and compare it to game design “snowball” mechanics.
• There are calls for hard caps on company size and personal wealth, citing outsized political influence of billionaires and the coming “trillionaire.”
• Brief disagreement arises over whether capital concentration is truly the “core point” of capitalism.

Advertising, Matching, and Economic Overhead

• Long subthread around whether ad spending is necessary or just wasteful overhead.
• Concrete example: small trades (e.g., plumbers) spending tens of thousands monthly on online ads just to be discoverable, versus word-of-mouth and local networks.
• Discontent with platforms (search, social, review sites) that make customer acquisition expensive and reputational risk high.

Investor Reactions: Hedging, Diversifying, and Factor Bets

• Multiple commenters say they’ve reduced S&P 500 or US exposure, shifting into:
  • Value/fundamental or non-tech funds, ex‑US indices, small/mid caps, or bonds/CDs.
  • Equal‑weight S&P (e.g., RSP) or “ex‑Mag 7” approaches to reduce mega-cap concentration.
• Others warn against fully dumping the S&P and instead advocate gradual rebalancing.
• Hedging out the top tech names is described as possible but costly or complex, not a turnkey product.

Alternative Index Weighting Schemes

• A novice asks about something “between” cap‑weight and equal‑weight (e.g., square‑root‑of‑market‑cap).
• Replies suggest:
  • Fundamental‑weighted ETFs (by book value, cash flow, sales) to downweight cash‑burning AI names.
  • P/E‑aware weighting to implicitly reduce exposure to very high‑multiple stocks.
  • Note that any non‑cap weighting tends to require more trading and thus higher costs; cap‑weighted indices largely self‑rebalance.

Software Economics and Top-10 Dominance

• One long comment argues software’s extreme scalability and low marginal costs explain why software‑heavy giants dominate: write once, sell across tens of millions of devices.
• This is contrasted with manufacturing firms that must pay for materials and labor per unit, limiting margins.
• The commenter laments that many large firms still mismanage software (outsourcing, cutting senior talent, misusing agile), leaving potential profits on the table even as software leaders thrive.

Bubble Risk, Historical Parallels, and Macro Fears

• Some worry tech/AI is a bubble (33% of VC reportedly in AI); others note past extreme sector concentrations (e.g., railroads in the 1880s) eventually mean-reverted but on long timescales.
• There is confusion over whether the “top 10” series is constructed using today’s top 10 projected backward or a rolling top‑10; this is labeled unclear and crucial to interpretation.
• Darker macro speculation appears: if the bubble bursts and capital chases land instead, commenters foresee rising real estate prices, mass homelessness, and harsher political responses.