Investing is not just a game of giant Jenga. But the pessimistic hedge funds, or the ones who must have shorts on to justify their high fees, as well as their media acolytes who sound so painfully bearish even if they are just trying to sound like informed skeptics, sure make it seem that way when they fixate on the fate of the stock market and the “Magnificent Seven.” The presumption of the gang tackle of articles about the Seven is simple: The market is too heavily concentrated in these seven stocks: Alphabet , Apple, Amazon , Meta Platforms, Microsoft , Nvidia, and Tesla . (For the Club, we own five of them: Apple , Amazon, Meta , Microsoft, and Nvidia .) Seven stocks cannot make up 38% of the market. Something’s got to give. Now, you have all read this thesis. You know it cold. There’s a dint of intelligence to it, too, because it does seem odd that we could have such a concentration. But “odd” and discovering and exploiting “oddities” is about drawing an observation, not about creating an investment idea. That’s why Jenga comes to mind. I first started reading about this thesis, summed up as a “house this concentrated cannot stand,” when these stocks amounted to about 15% of the S & P 500. At every single milestone, the sirens have grown louder and ever more frightening. The implication is stark: If it gets to be one more percent, well then, “That’s it, that’s too much concentration,” so “GET OUT NOW,” a phrase we use in the office to commemorate a blown call of mine that I wrote about in my 2002 book, “Confessions of a Street Addict.” I like to use the “Get Out Now” analogy because it captures the emotion these articles’ arguments trigger. You don’t think, “wow, that’s a lot of concentration.” You think, “Oh boy, we have to sell everything because if it gets to be one more percent than the edifice, the whole darned edifice, is going to come tumbling down.” But it simply hasn’t worked. At every milestone, the flags are waved more furiously, the lights are flashing more intently, the noise is ever more excruciating, and then nothing happens. Nothing at all. Except you may have sold because of the fear that has been engendered, and you realize that you sold on a thesis that had nothing to do with the fundamentals and much more to do with some amorphous belief that if you put on one more percent, it’s all over and the tower collapses. The implication, of course, is that the concentration is so overwhelming that the collapse of the Seven would take down the whole market no matter what — which is why you have to “Get Out Now.” But if you get out from under the silly Jenga paradigm, it’s perfectly obvious that there could be many “cures” before the apocalypse. The first is that perhaps the Seven stay where they are, and the rest of the market grows bigger. It’s a nice thought, except that’s not how we invest. The Investment Company Institute’s data shows that for the 12 months ended June 2025, we had $899 billion in passive inflows, while active funds had net outflows of $230 billion. I don’t know how the Seven’s market capitalization stays where it is, and the rest of the market gets bigger, given the inflow/outflow ratio. In fact, the ratio breeds a sort of self — enforced treachery. It’s highly unlikely that active funds are losing their assets because they have too much of the Seven. That would be ridiculous. If you were running a fund with an overweight of the Seven, you would be crushing the averages. What’s happening is rather the opposite. A dollar out of an active fund into the so-called passive S & P 500 fund is a dollar that sends more money to the Seven than would otherwise be available. Sure, if you want to, you can take your money out of a traditional S & P 500 fund and put it into an equal-weighted fund, but you would have underperformed for the last one, three, five, and 10-year periods. Past performance does not equal — blah blah blah — but I don’t think it’s a reasonable supposition that the way out of the Jenga mess is to expect the money to go to other stocks. A second way is for SOME of the Seven to break down. We saw this occur to Tesla earlier in the year when the stock fell from the mid-$400s down to below $250 in the spring. The proximate cause: a combination of weak car sales and a sense that CEO Elon Musk had decided to spend more time in government helping out a president whose views were antithetical to the average Tesla car buyer. Car sales bottomed after Musk’s very high-profile blowup with President Donald Trump . They started climbing when he started spending more time with Tesla and, at least in this country, when car shoppers rushed to take advantage of the one-time tax credit before it expired. But then Tesla ultimately exploded to new high levels when the narrative changed and we began to think of Tesla as a way to invest in artificial intelligence, through robots, self-driving — aided by a huge supercomputer made up of Nvidia chips — and battery technology that could ultimately be used to help power the grid when not in use. Was this resurrection a failed way of looking at the perils of concentration? No, what it amounts to is a refutation of the Jenga game, or to take it out of the index-obsessed industry: who cares about the Jenga game? The Seven is an artificial construct. Tesla’s decline stopped the discussion. Tesla’s comeback made the Jenga discussion legitimate only in the eyes of those who wanted to emphasize the importance of the Mag Seven Artifice. Let’s further it. Instead of “GET OUT NOW” referring to the S & P 500 because it is so dominated by something that’s presumed to be doomed by its own weight, after these most recent quarters, what could doom our four megacap stocks that just reported? GOOGL YTD mountain Alphabet YTD Take, Alphabet , which needs no defense. It is has now been anointed as the winner in part because it is now no longer considered as a pariah monopolist worthy of being hobbled by the Justice Department and, in part, because it is the company that seems to be getting its money’s worth from its AI spend. It has its own chips, but it is appreciated for its use of Nvidia chips without breaking the bank. It had been a low multiple stock and it is still not expensive at 27 times next year’s earnings. It has solved its Google Search to Gemini AI transition, Youtube is extraordinary and underutilized, and its cloud is a stunning success. In short, it is everything that we loved about it with the real objection — the government — no longer a factor. Justice lost. Alphabet won. MSFT YTD mountain Microsoft YTD Microsoft . Until Friday’s decline we had all pretty much concluded that Microsoft was a true winner with no real flies on it. The Co-Pilot numbers were astounding. Only the nitpickers and those who question how much business is really from OpenAI would castigate the Azure cloud unit. Enterprise software dominance. Gaming and LinkedIn just OK, but both about to get better. Nothing negative. Seemingly UNDERVALUED. AAPL YTD mountain Apple YTD Apple is proof positive that if you don’t have to spend fortunes on AI and Nvidia, you can be the best there is. We now know that Apple’s multiple won’t be as high as we thought because of the iPhone 17 ramp. We also know that China has reversed and gotten back into growth mode. The stock’s inability to hold its gains I think had more to do with a belief that “now we know why it ran,” than anything else. The company seems unwilling to accept my idea that one of these chatbots — Perplexity being the most likely — will pay it to be exclusive. What’s more than likely is that Gemini pays Apple $20 billion in addition to the $20 billion-plus that it now gets from Alphabet for Google Search. It may turn out that Apple gets nearly $50 billion from Alphabet, and the multiple is even smaller than we thought. There is always an advantage to scale, and Apple’s got the best installed base there is. Right now, there is a level of vanilla to all of the chatbots, and we know it. I think there is a false pride in them. They are all run on the same hardware, albeit trained on different models. I personally believe the one that pays for The New York Times, Bloomberg, as well as ESPN and its official stat partner, the Elias Sports Bureau, wins. But no matter what, if you think Apple’s market capitalization getting bigger is a problem BECAUSE It makes the Seven too much of the S & P 500, I think you are rather uninformed because the big concerns about Seven concentration have more to do with paying Nvidia too much for their wares so Nvidia is practically zero-sum or because OpenAI is behind the spend and neither is the case with Apple. AMZN YTD mountain Amazon YTD Amazon? Oh, please. We all know this was the breakout quarter for this underperformer of the Seven as the company solved the enigma/disappointment of its Amazon Web Services. Not to be too self-centered — but excuse me for thinking that CEO Andy Jassy crafted that script for me — a conscientious objector to the narrative that AWS was doing great so stop worrying. The stock would have stopped and gained 10 points if AWS growth had accelerated from 17.5% growth to 19% growth. But 20%? Glory be. Not only that but in the previous quarter Microsoft had touted that it was taking big share from Amazon. Now, I have to wonder about that. Oh, and, what exactly is Azure’s base that it can be such a big percentage gain? Why don’t they reveal what their basis is? META YTD mountain Meta Platforms YTD Geez, I can’t believe the amount of skepticism about Meta Platforms and CEO Mark Zuckerberg. Right now, I am sure that OpenAI is trying to figure out which verticals it wants to compete in. It’s playing with the funny money of the year 2000 ilk, and might think it can get into any and all. But that’s not wise even for these folks. So, OpenAI and CEO Sam Altman survey the landscape and what do they come up with? They know they have to move quickly if they have to go with who is underspending. The one thing we know is that Zuckerberg is NOT underspending. The second thing you need to know about Zuckerberg is that he knows how to play the Wall Street game. He declares that he is going to pay $100 billion minimum to Nvidia et. al. What if he spends $80 billion? His stock goes up $100 per share, most likely, and he keeps OpenAI from spending on social. He kills two birds with one stone in addition to delivering a pretty perfect quarter, overlooked by the stealthy spending plan. That this isn’t self-evident had everything to do with Zuckerberg being tabbed as a reckless big spender when he should be viewed as someone who is creating the greatest moat of all time. OK, zoom back into the Magnificent Seven/Jenga. As is so often, I find myself at the other end of the ideological index stick. Maybe because I am not all-index-all-of-the-time centric, as I point out in my new book “How to Make Money in Any Market.” I don’t see the need to play the S & P 500 divided by the Seven market cap game. I like to look at individual stocks. I think the professionals abetted by The Wall Street Journal’s gang of market-opining index lovers are way too caught up in index ideology. If you stop thinking of these stocks as chunks of the index and start thinking of them the old-fashioned way, as companies worth investing in, you won’t be so misguided. Bottom line I am not oblivious to the concentration. In order to stay relevant, perhaps the S & P 500 does a rebalancing act that reduces the concentration somehow. Maybe some stocks transcend the index’s gravitational pull and advance to the trillion-dollar level as we suggested on “Mad Money” this past week. We suggested that JPMorgan could be next to hit a trillion. For the most part, you have to blame the index promulgators for the Seven’s dominance, BUT just because it helped vault them to where they are, does NOT mean that it sows the seed of their destruction. They won’t bring the S & P 500 down. Nor will Nvidia, as it remains the building block of the best of the chatbots, and you won’t exceed it by using Advanced Micro Devices . No, the destruction of the Seven’s preeminence will come from within, from weaknesses among the Seven itself — and for that we will have to wait another 90 days, until the next quarter is reported, which is a lifetime for all of us. (Jim Cramer’s Charitable Trust is long AAPL, AMZN, META, MSFT, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Why the ‘Mag 7 is too much of the market, get out’ is money-losing narrative
