A striking observation from Charles Schwab’s On Investing podcast episode “Concentration Risk Meets Diversification Reality” reframes how passive investors should think about their S&P 500 exposure heading into the back half of 2026. Today, just three companies (Alphabet, Amazon, and Meta) account for approximately 70% of the increase in earnings expectations for calendar year 2026, in dollar terms. That is earnings-level concentration sitting atop the market weighting concentration that has dominated the U.S. market for years.
The Three Names Behind the Number
Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) anchored Q1 with EPS of $5.11 against a $2.63 consensus, revenue of $109.896 billion, up 21.79% year over year, and Google Cloud growth of 63% with backlog nearly doubling quarter on quarter to over $460 billion. CEO Sundar Pichai noted that Gemini processes more than 16 billion tokens per minute via direct API use, up 60% from the prior quarter.
Amazon (NASDAQ:AMZN) followed with EPS of $2.78 versus $1.73 expected and AWS growth of 28%, the fastest in 15 quarters. CEO Andy Jassy noted that the chips business topped a $20 billion revenue run rate, growing triple digits year over year.
Meta Platforms (NASDAQ:META) reported EPS of $10.44 versus $6.66 expected on revenue growth of 33.08%, although an $8.03 billion income tax benefit from U.S. Treasury Notice 2026-7 contributed $3.13 per share to the headline.
The Illusion of Diversification
An investor holding a market-cap-weighted S&P 500 fund owns 500 of the top US businesses on paper. Forward earnings growth, however, leans on a handful of mega-cap AI hyperscalers, and market cap weighting heavily favors the top Mag-7 companies. If Alphabet, Amazon, or Meta fail to convert staggering capex commitments into the embedded earnings power consensus already priced in, the index has less cushion than retail investors might expect. Capex guidance for 2026 is $175 to $185 billion at Alphabet, roughly $200 billion at Amazon, and $125 to $145 billion at Meta, raising the bar for monetization.
Year to date through May 7, GOOGL is +27.24%, and AMZN is +17.48%, while META has lagged at -6.48%. The S&P 500 itself is up +7.09% YTD. So far, the tech and communications sectors have dominated positive earnings revisions for both Q1 and the full calendar year 2026.
The Energy Counterpoint
The other side of the same coin: the energy sector is under-owned both institutionally and among individual investors, and represents less than its historical share of the S&P 500. Extreme under-ownership in one sector alongside extreme concentration in another are both expressions of risk.
Investors seeking earnings diversification, not just nominal stock-count diversification, may need to look beyond market-cap-weighted indexes like the S&P 500 to achieve true diversification.
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