Beyond The Magnificent Seven: Discovering Equity Opportunities in The S&P 493
Web title: Investing Beyond the Magnificent Seven Stocks
Full episode description (Apple Podcasts, Spotify):
The S&P 493 is gaining attention as investors look beyond the Magnificent Seven and reassess where growth and diversification may come from in today’s equity markets. With market concentration at historic highs, a handful of mega cap companies have driven much of the S&P 500’s returns, raising questions about what lies beneath the surface.
In this episode of The Bid, host Oscar Pulido speaks with Ibrahim Kanan, Head of the U.S. Core Equity Team within BlackRock’s Fundamental Equities Group, about the growing relevance of the S&P 493 — the broader set of companies outside the largest names. They explore how market concentration has evolved, why a $200 billion company represents only a small fraction of the index, and what that means for portfolio exposure.
The conversation highlights how earnings growth is beginning to broaden beyond mega cap stocks, supported in part by the expanding impact of AI investment across sectors. From industrials and healthcare to consumer and financials, companies are both benefiting from AI infrastructure spending and adopting AI to improve operations. As dispersion across companies increases, the discussion also examines how active investing, differentiation, and stock selection may play a larger role in navigating today’s equity market.
Key insights from this episode:
Introduction
Market concentration and the Magnificent Seven
What the S&P 493 represents
Earnings growth divergence and convergence
How AI is broadening across sectors
Winners and losers in AI adoption
Opportunities beyond mega caps
Diversification and active investing
Final thoughts on market outlook
Keywords: S&P 493, Magnificent Seven, US equities, stock market trends, AI investing, capital markets, active investing, portfolio diversification
Sources: BlackRock Fundamental Equities with data from FactSet and Bloomberg as of 12/31/25; Yahoo Finance, Stock Prices for NVDA and HAS, US ISM Manufacturing PMI 2026; Here's the Average Stock Market Return in the Last 15 Years and What Wall Street Expects in 2025, Yahoo Finance January 2025; Magnificent-7’ Q4 2024 Earnings Review: Growth Holds, but Rotation Awaits LSEG March 2025
Written Disclosures In Episode Description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. In the UK and non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures
<<TRANSCRIPT>>
Oscar Pulido: Over the past few years, just a handful of Mega Cap AI powered companies have driven a significant share of US equity market returns. The so-called magnificent seven have reshaped portfolios, headlines, and investor expectations, but markets don't stand still, and leadership doesn't either. So how can long-term investors navigate this unique moment in time and the potential for market broadening?
Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
Today I'm joined by Ibrahim Kanan, head of the US Core Equity Team within BlackRock's Fundamental Equities Group. We'll explore what this period of historic concentration tells us what investors may be overlooking how to think about opportunities beyond the biggest names in the market.
Ibrahim, thank you so much for joining us on The Bid.
Ibrahim Kanan: Thanks for having me.
Oscar Pulido: Ibrahim, we want to talk about the stock market today, and specifically the US stock market and maybe more specifically the S&P 500. We're at a point in time right now where the concentration in the S&P 500 is quite unusual, the Magnificent Seven stocks, which are tech and AI adjacent companies have driven an outsized proportion of the returns in recent years, and they've become a big part of this US equity benchmark. I think people know that, but perhaps we can start with how unique a period in history is this in terms of the proportion that they represent?
Ibrahim Kanan: Oh, absolutely. It is a really unique period of time. When I look at the US equity market today, the top 10 stocks, as I think a lot of people know, are 40% of the index. That's the most concentrated that it has ever been, and we track market concentration going back over a hundred years.
And if you look at the US market over a hundred years, we've had many periods of time where the market has been concentrated. Going into the Great Depression, the market was dominated by radio, by autos, by a variety of companies. Going into the 1950s, we had the nifty fifties, Johnson and Johnson, Xerox going into the.com bubble. We had a real concentration in tech stocks like Cisco. During COVID, we had concentration, and now today we've got the Magnificent Seven. And when you look at that concentration, there's always been periods of time where we've had market concentration, but it's really never been this concentrated.
Oscar Pulido: So, what you're saying is it's not unusual for companies to make up an outsized proportion of the index. You've drawn some historical examples, but is this a very unique period where the 40% that is in the top 10 is that high relative to history? And then what does it mean for somebody who's invested in the S&P? What does that do to their portfolio if there is such a concentration in some of those names?
Ibrahim Kanan: This is the most concentrated that the S&P has ever been. It's that simple. And it's really important because we're used to thinking that the S&P 500 is broad and diversified, right? It's 500 companies. You think, okay, I'm getting exposure to 500 companies. But the reality today is that it's really dominated by these 10 companies. And so, when you think about what it means, I think on one hand, obviously it means that most of your exposure is in 10 companies, but on the other hand, it also means that you have a large set of companies are actually underexposed in the index. So, there are a lot of large, innovative companies in the United States, but not a lot of them are large in the index. So just as an example, if you think about a $200 billion market cap company in the US today, do you know how big that company is in the index?
Oscar Pulido: I would think it would be a reasonably sized position in an index, given that a $200 billion company sounds pretty big.
Ibrahim Kanan: That's exactly right. I mean, you would think that, and if it was a European company, actually it would be a top five or a top 10 company in the index. But because it's a US company, because it's in the US market, and the US market is so top heavy, a $200 billion company today in the S&P 500 is 0.2% of the S&P 500. It's really incredible. And so, I think there's obviously the opportunity of having your exposure in 10 stocks, but there's also the opportunity cost of not having enough exposure to these large, innovative $200 billion companies
Oscar Pulido: So, a $200 billion company, you're saying if you were to take that size company and put it in a European equity market index, it would be a top holding. But in the US, when you put it in the S&P, because you have trillion-dollar market cap companies, it can go a bit unnoticed.
So, Ibrahim, when you think about the other 490 companies in the S&P or the other 493, if you just isolated that, the Mag seven, as those big companies, what are some of the signals that you're looking for to understand if some of those other companies, the best of the rest, I think is what you've labeled them start to outperform. What are you looking at?
Ibrahim Kanan: No, that's exactly right. The best of the rest. I think that's a really good way to phrase it. The first thing that we look for is we take what we call an earnings first approach. So, let's look under the hood and see what's happening from an earnings perspective. And when you look at the index, you find that there's something really fascinating that's been happening. In 2023 and 2024, the Mag Seven grew earnings almost 40% a year. A really incredible level of growth. That's why the market is so concentrated, because they grew so fast. And you look at this year and last year, they're still growing around 20%, really healthy level of growth. It's lower, but it's still healthy.
Now, here's the really interesting part. If you take the Mag Seven out of the earnings growth of the S&P would have not grown earnings between 2023 and 2024. And I think that's just so incredible to think about that. The S&P would have not grown earnings. And everyone thinks the S&P has been doing so great and it's a great index. And it is a great index, right? But it's really been a very narrow index. But here's what we think is really exciting. Last year, those remaining companies in the index, they finally started to grow again. So, they grew almost 10% last year. They're expected to grow over 10% this year, and so that earnings growth between the Mag Seven and everyone else is finally converging, and that's the first thing that we look for.
Oscar Pulido: Talk a little bit more about that, what changed in the environment that is causing the best of the rest, to start to grow earnings again after a period where you're saying they didn't grow earnings at all?
Ibrahim Kanan: There's two big things that have happened. Number one is, if you think about the period of time between 2023 and 2024, we were coming off of COVID. There was a lot that happened during COVID. One thing that happened was people spent most of their time at home, they were buying a lot of goods. And so, part of it was there was just so much excess that happened during Covid and it took a little bit of time for companies outside the Mag Seven to really digest that. So, I think we're finally getting through that. Those companies can now resume the level of consumption that we've seen historically.
The second thing that has happened is, as we know, the Mag Seven are spending an incredible amount of CapEx, almost a trillion dollars of CapEx this year. that benefit has historically gone to a narrow set of companies. Obviously, NVIDIA's been one of the biggest beneficiaries of that, but now that benefit is starting to spread across the economy. It's not just Nvidia, there are other companies within tech that are finally starting to benefit from this. There are non-tech companies that are starting to benefit from this. Industrial companies, utility companies, there are healthcare companies that are benefiting from this. The benefit of this AI theme is really spreading across the economy, and we're starting to see that show up in earnings.
Oscar Pulido: You're saying that the hyperscalers, these are the big tech companies, a lot of these are part of the Magnificent seven, have been spending, CapEx as you mentioned, as the AI industrial revolution takes hold and that the beneficiaries of that have been very narrow but now that's starting to broaden. Does that mean that the hyperscalers are buying the products of these firms or does it mean that these firms are starting to use AI or maybe it's both?
Ibrahim Kanan: Oh, it's absolutely both, and that's a really good distinction. So, on one hand, when you think about a data center, obviously the GPU is critical to a data center, that’s why NVIDIA's done so well. But when you think about that data center today. There are so many other inputs that go into a data center. There's memory that goes into the same data center. There's interconnectivity within the data centers, interconnectivity across data centers. There's cooling that needs to go into the data center. So, the infrastructure spend around the data center is really broadening out. We talked a little bit about market concentration. NVIDIA is a four to $5 trillion market cap company. Now think about how many companies are in this AI infrastructure ecosystem that have market caps of 10 billion, 50 billion, a hundred billion. Well, a 1% move in NVIDIA's stock is $50 billion of market cap. If that 50 billion of market cap were to go somewhere else, that could be a doubling or a tripling of that other stock, So I think that AI infrastructure broadening out could have a really sizable impact on those companies.
Now you brought up a really good distinction, which is, there are also companies that are using AI. I think that's one of the most underappreciated parts of the market today. There are a set of companies, and I think you've seen really the beginning stages of seeing companies that are using AI to become better companies, and this isn't just about cost cutting, right? This is about using AI to become a better company.
So, I'll give you an example. There's a company called Hasbro. I think a lot of us are familiar with Hasbro. It's a toy company. It's been around for a long period of time. On Hasbro's latest earnings call, they talked about all the ways that they are embedding AI into their processes. They're using AI to help them and 3D printing to help them prototype toys much faster than they used to before. So now with AI, they can prototype 10 times as many toys as they used to. Now with AI, they can get a better sense for which toys are going to resonate with their customers, right? And Hasbro reported earnings a few weeks ago. They're seeing an increase in revenue. They're gaining market share, and the stock was up 10% on that earnings day, almost 10%.
Now here's a really interesting thing. Not all companies are doing that. One of their competitors that we've been observing isn't doing this. They're losing market share. They actually reported a week after that, and their stock was down 25%. And so, you're really starting to see real winners and losers within the broader US equity market landscape. And I think that's really creating a lot of opportunities for active investing.
Oscar Pulido: And it looks like when you look at the market this year, the S&P is roughly flat over the course of this year. It's been a little bit up, a little bit down, but I think what you're highlighting is that underneath the surface there's a lot of dispersion. You've used a very specific example, but it sounds like AI is impacting some companies very positively, and perhaps other companies aren't taking advantage of it, and that's creating a bit of an environment for you to generate performance.
Ibrahim Kanan: That's exactly right, it's never been as exciting as it is now to be an active investor. We're seeing real dispersion in the market something that we haven't seen in a long period of time. For every company in the market today, you have to ask the question, is this company going to be around in 10, 15 years? This was not something we had to ask before. And I think that question is really more applicable than it has ever been.
Oscar Pulido: Ibrahim, you gave the example of Hasbro a toy company. Are there specific sectors that you see the AI beneficiaries living in or is the opportunity in those other best of the rest companies, is it pretty broad based across a number of sectors?
Ibrahim Kanan: I'd say it's really broad based. Yeah. we're really finding opportunities. I'd say this, there aren't a lot of opportunities yet. We're still early, right? There aren't a lot of Hasbro’s, but the ones that you do find, they're really good investments, and so there aren't a lot of them, but there are a few across a variety of industries.
So, we're finding opportunities in consumer like Hasbro, we're finding opportunities in healthcare companies that are using AI to become better at r and d. We're finding opportunities in industrials, logistics companies that are using AI to become more efficient with their logistics. We're finding opportunities in financial services.
that's an area that I think has really been talked about quite a bit. but that's an area where you could really use AI to become a better financial services company. And so, I'd say that real impact is real broad based. But again, because the market is so concentrated, I think that's the real opportunity for investors like myself. So, you look at Hasbro, for example, toy company, almost 20 billion market cap. Three basis points in the S&P 500, really small exposure in the S&P 500.
Oscar Pulido: Is AI the only catalyst that is causing you to have interest in some of these companies? Or are there just other more idiosyncratic reasons that, that you find the investment opportunity?
Ibrahim Kanan: No, I think it's pretty broad based. AI is one piece of the puzzle. we do have, as I mentioned, a lot of companies that effectively been in recession for a very long period of time and now are coming out of a recession, right? You think about the industrials space, for example, the ISM Manufacturing index, which is a gauge of industrial activity in the United States, was below 50 for almost three years. Below 50 means that it's in a recession. Effectively, that's the longest that it's been below 50 since the 1980s. Think about how many companies have effectively been in a recession for a long period of time and are now finally coming out of that. And so, we're looking at the market really from an idiosyncratic lens. We're trying to find opportunities, whether it's AI related or not AI related or our long-term earnings are higher than consensus. That's really critical to the process that I run. And I think that's an area where we're finding real opportunities, both within AI but also outside of AI.
Oscar Pulido: So, Ibrahim, we've talked to Jean Boivin from the BlackRock Investment Institute this year, and we talked to him about the 2026 outlook, and one of the themes that he touched on was the diversification Mirage this year, which is this concept of it's hard to find diversification in today's environments. Maybe some of the asset classes you relied on in the past are not. Diversifying your portfolio as much as they used to. And we started this conversation by talking about the S&P being at a historically unique moment in time where it is very concentrated in some top names. So, talk a little bit more about that. How do you think about diversification when you're approaching the US equity market?
Ibrahim Kanan: Oh, I really like that term ‘diversification mirage’. I think that really is such a great description of the US market today. And we talked a lot about the market being so concentrated. And I think, look, I think when I think about investing over the last 15 years, so many of us have gotten so used to just, buying the S&P, right?
You can buy the S&P. You could own it for 10, 15 years. If you look at the last 15 years, the S&P has annualized at about 13% a year. really incredible level of return. So just buying the S&P has been the absolutely the right decision. But I look at where we are today and I look at the fact that the US market is so concentrated, and I look at the fact that the opportunity set outside the current Mag seven.
It's more exciting than I think it's ever been. I think there's real opportunity to get differentiated exposure. Now, you ask the question, how do you do that? And that's what everyone's asking the question, how do I do this? And it's really interesting. Some of our clients, for example, will say, you know what? Maybe we'll buy the equal weighted S&P. You can get exposure to 500 companies equally weighted well, that'll get me diversified exposure, right? Not really. And actually, if you think about, I mentioned a $200 billion market cap company being 0.25% in the S&P. in an equal weighted index. That company's only 0.2% of this. So, you're not really getting more exposure to those really great, innovative companies. There really is a diversification mirage.
I think there are real alternatives, and I think the alternative is really back to active investing, taking real tracking error, taking real risk in your portfolio, but doing it in a way that is differentiated.
Oscar Pulido: Ibrahim, you've been a professional investor for over a decade, close to 15 years. I'm just curious, in your day to day, what are some of the lessons that you've learned and the things that you try and do, especially when you're dealing with periods of market uncertainty?
Ibrahim Kanan: I have a front row seat to investing in the US market and, I get to see the real excitement in the US market and the real opportunity in the US market. When you see the uncertainty, uncertainty is I think the price that we pay for the returns that we've been able to realize in the US market, and we talked about 13% annualized returns over the last 15 years in a highly liquid market, right? to get those types of returns in a highly liquid market is really unheard of consistently.
The price that you pay is uncertainty and the price that you pay is volatility. And I think that uncertainty and that volatility really creates opportunities. And so, I think the more uncertainty it is from, as an active investor, the more excitement I have, right? Because the more opportunities that I get to do what I do.
And look, I think there are three things that I try to hold myself to just at a personal and a professional level. Number one, to always be intentional in everything I do. Number two, to really approach things with a mindset that avoids any sense of fear, right? I think you really can't be afraid, and you always have to have a True North. And I think number three is, look, I think we can't control what happens to us, right? Especially in a volatile market, but you can control how you react to things, and I think that is the most important thing. Always having a process and a framework to ensure that you could react to things in the right way, I think is really critical, both personally and professionally.
Oscar Pulido: Well, Ibrahim, the S&P is one of the most followed indices in the world. I think a lot of investors globally. look closely at the S&P 500, because there are 500 companies as you mentioned, but one the things that you've pointed out is that today there's a concentration in a handful of those names, and there's a great opportunity to look, in the other best of the rest as you've labeled them.
So, thank you for sharing those insights and some of the viewpoints that you have on these opportunities. And thank you for doing it here on The Bid.
Ibrahim Kanan: This was a lot of fun. Oscar, thanks a lot for having me.
Oscar Pulido: Thanks for listening to this episode of The Bid. If you've enjoyed our conversation, check out the episode with Carrie King, where she considers her stock picks for 2026. And make sure you subscribe to The Bid wherever you get your podcasts.
<<SPOKEN DISCLOSURES>>
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned is merely for explaining the investment strategy and should not be construed as investment advice or recommendation. In the UK and Non-European Economic Area countries, this is authorized and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorized and regulated by the Netherlands Authority for the Financial Markets. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
MKTG0426-5338343-EXP0427
