Wall Street's case for stocks rests on booming profits. The Journal's Hannah Erin Lang checked who's doing the booming. Two companies, Nvidia (NVDA) and Micron (MU), supply 34% of the S&P 500's expected profit growth this quarter. Ten companies supply about two-thirds. The rest of the index is growing too. It's just growing a lot slower.
FactSet's tally has S&P 500 profits up 30% from a year earlier for the third quarter. That's the number behind the bull case. Strip out the top ten names and the other companies still grow profits about 10%. Chris Grisanti of MAI Capital Management calls the fast growers "the best on an all-star team right now." The rest of the team, he says, is carrying its weight.
The Journal's chart names the ten. Micron, Nvidia, Broadcom (AVGO), ExxonMobil (XOM), EchoStar, Sandisk (SNDK), Marathon Petroleum, Meta Platforms (META), Chevron (CVX) and Valero (VLO). Four make chips. Four are in oil, lifted by the prices the Iran conflict pushed up. Meta and EchoStar round out the list. The chip numbers are wild. Micron's latest quarterly profit came in 1,078% above a year earlier, more than ten times. Nvidia's is expected to jump 90%.
Why stocks look cheaper anyway
Here's the odd part. Profit forecasts shot up this year. Share prices didn't keep up, not for the index and not for the ten driving it. So the index now trades at about 19 times the next 12 months' expected earnings, down from about 22.5 in January. Grisanti reads that as a market that already expects the supersize growth to fade. Larry Adam of Raymond James hears the dot-com comparison and points at the profits. "This is not back to 2000," he said. Those companies weren't making money like this.
The risk is the one under the whole AI boom. The spending might never pay off. Ed Yardeni, the longtime analyst, put the fear in one picture, "converting all these data centers into pickleball facilities." Last week showed how fast that worry comes back. Meta said it would raise cash, and the Nasdaq had one of its worst selloffs this year. Grisanti's own team is getting ready for a slowdown. It's moving some money from the chip suppliers into power providers.
Our read
This is investments and risk (IN04). An S&P 500 index fund looks like 500 bets. On this quarter's profit growth, it's closer to ten. The index closed Tuesday at 7,722.60, about 1.23% under its Oct. 6 record of 7,818.93. That's a price that counts on the ten to keep delivering. Equal weight is the plain answer. The Invesco equal-weight fund (RSP) gives every stock the same slice. It closed Tuesday at 217.52, up 13.6% this year, against 12.8% for the S&P 500. It has kept pace without leaning on the ten. The house put in the first third of its North Star plan on Oct. 17, equal weight first. That's done, and RSP sits in 9 books. Nvidia (31 books), Micron (23), Broadcom (29), Meta (20), Exxon (34), Chevron (37), Valero (12) and Sandisk (1) are held at weight. Nothing added.
The one thing this touches is the biggest stock fund in your retirement plan. The check this week is a two-minute job. Open the fund's top ten holdings and add up their weights. If ten names are a third of the fund, you own this story, whether you meant to or not. A plan is an umbrella you pack on a sunny day. A review is where we check it's in the bag.