The heavy reliance on a few dominant technology companies has raised concerns among investors in the United States. As of the end of the third quarter of 2025, the eight largest American firms, primarily in technology sectors, accounted for a staggering 36.1% of the MSCI USA Index’s value. This concentration is reminiscent of the dot-com boom’s peak, suggesting that a downturn among these giants could have severe repercussions for the broader market.
Identifying Opportunities Outside the U.S.
For investors seeking diversification, the current landscape presents a unique opportunity. Developed markets outside the United States are showing lower valuations and a more balanced sector representation. The MSCI EAFE Index, which includes markets in Europe, Australasia, and the Far East, demonstrates a significant difference in concentration compared to its U.S. counterpart. The top eight companies in the EAFE Index represent just over 10% of its total market weight, with financials making up approximately 25% of the index, while technology holds a more modest 8%.
This structural balance allows international markets to weather fluctuations better, as they are not overly reliant on a handful of companies. In contrast, the U.S. market’s dependence on the so-called Magnificent 7—including Apple, Microsoft, Amazon.com, Meta Platforms, Tesla, Nvidia, and Alphabet—highlights a vulnerability that could affect investor confidence. A minor setback for these tech giants could lead to significant losses across the market, as evidenced when the S&P 500 lost $5 trillion in market value within just two trading days earlier this year.
Broader Horizons for Investment
The advantages of looking abroad extend beyond mere company names. International equities offer enhanced sector and earnings diversity alongside more attractive valuations. As of Q3 2025, all eleven sectors in the U.S. were trading at higher price-to-earnings ratios compared to their EAFE counterparts. Additionally, dividend yields present a compelling argument for international investment, with EAFE stocks yielding an average of 2.9%, compared to 1.2% for U.S. stocks.
Currency trends also play a significant role. The first half of 2025 marked a decline in the U.S. dollar, which experienced its weakest performance since 1973 due to uncertainties surrounding U.S. economic policies and rising national debt. As growth expectations across developed economies converge, a weaker dollar could further enhance returns for U.S.-based investors who diversify into non-dollar assets.
With U.S. market dominance persisting for over 15 years, many portfolios may inadvertently hold too much exposure to Big Tech. The pressing question for investors is whether it remains wise to invest heavily in these companies, given their inflated valuations and the historical concentration risk at unprecedented levels.
Reallocating even a fraction of U.S. equity exposure to developed international markets could alleviate the risks associated with overconcentration and position portfolios to benefit from potential currency fluctuations and attractive valuations abroad.
The current market reliance on a narrow group of leaders underscores the importance of diversification. Historical patterns suggest that no single theme can dominate indefinitely, and moving towards international investments can help broaden return drivers. By acting now, investors can mitigate risks and prepare their portfolios for the next chapter of global market leadership.
This analysis reflects the author’s views as of September 30, 2025, and the information is derived from sources deemed reliable but not guaranteed. It does not constitute a recommendation or an offer to buy or sell any securities, nor does it consider individual investment goals. All investments carry the risk of loss.
