Key Questions: How Much Tech Do You Really Own?

Technology has become an increasingly dominant force in US stock markets – and thus in many investors’ portfolios. Over the past 15 years, tech companies have delivered standout growth and returns, causing broad market indices to tilt heavily toward the tech sector. 

Since the Global Financial Crisis (GFC), technology stocks have significantly outperformed the broader stock market, returning an annualized +20.6% vs. +16.1% for the S&P 500 Index (from 3/1/09 to 2/28/25). Excluding tech stocks, the S&P 500 generated an annualized return of +14.2% over the period (for a cumulative return of +743% vs. +991% for the S&P 500 including tech stocks). While certain years have been better than others, the outperformance of tech stocks since the GFC has been remarkably consistent. In the 16 calendar years since 2009, the tech sector has underperformed the broader market by more than 100bps in just four of those years (2010, 2013, 2022, and 2024). It’s hard to argue there’s been a better place to invest in equities than US tech stocks. 

The largely sustained and uninterrupted post-GFC outperformance of the tech sector has made it the largest component of the US equity market by far. As of February 2025, the tech sector’s weight in the S&P 500 was approximately 31%, with the next largest sector being financials at about 15% of the index. For reference, tech sector’s weight in the S&P 500 peaked at around 35% during the height of the dot-com boom. 

The S&P 500 – originally designed to provide investors with broad exposure to the US equity market – has become increasingly dominated by technology stocks in recent years. And yet investors may have even more exposure to technology-related businesses than they realize. 

Sector Reclassifications & “Hidden” Tech Exposure

The Global Industry Classification Standard (GICS) – an industry taxonomy developed by S&P and MSCI to classify stocks into sectors and industries – has evolved over time, and its changes have altered how tech and tech-related companies are classified. Since its introduction in 1999, GICS has undergone 14 updates in an effort to reflect shifts in the economy (e.g., changes in business demands and consumer behavior). Notably, the two most recent GICS revisions (which occurred in 2018 and 2023) redefined what counts as a technology company – resulting in a number of prominent publicly traded companies which were previously classified as tech stocks being placed in other sector buckets, even if their businesses are fundamentally technology-driven.

In 2018, a new sector was created which resulted in several of the “FAANG” stocks – including Meta, Netflix, and Alphabet – moving out of the tech sector and into the newly created communication services sector. 

In 2023, another GICS update pulled payment processing companies out of the tech sector. Visa and Mastercard – previously two of the five largest companies in the tech sector – were reclassified into the financials sector (along with other fintech businesses like PayPal and Fiserv). The rationale was that these are essentially financial services firms (transactions & payments), though of course they are highly tech-related. 

However, for a passive investor in an S&P 500 index fund, the underlying exposure to these businesses didn’t change as a result of these reclassifications – only their labels did.

These GICS evolutions underscore that the definition of a tech stock can be fluid. Amazon, for instance, is classified as consumer discretionary, but one could argue that much of its value and growth comes from AWS cloud computing and its technology platform. Tesla also sits within consumer discretionary (as an automaker), yet it’s often viewed as a tech company (with innovations in software, AI, and batteries). 

By reclassifying just seven highly tech-related businesses – Meta, Netflix, Alphabet, Visa, Mastercard, Amazon, and Tesla – into the tech sector today, the sector’s weight in the S&P 500 would jump from approximately 31% to roughly 45%. Even if we only reclassified the five companies that were previously classified as tech stocks according to GICS (so, excluding Amazon and Tesla), tech stocks would represent ~40% of the S&P 500. 

As such, most “diversified” US equity portfolios have become heavily tilted toward technology and digital innovation, whether intentional or not. 

Moreover, the performance of the S&P 500 in recent years has hinged on the fortunes of a few giant tech-related stocks. For example, the “Magnificent Seven” mega-cap tech (and tech-related) stocks contributed more than half of the gains for the S&P 500 in 2023 and 2024. 

Opportunities for Diversification

Tech’s dominance, however, has largely been concentrated in US large and mega-cap stocks.

Looking outside the US, technology stocks represent less than 9% of the MSCI EAFE Index (as of 1/31/25), which consists of large and mid-cap companies across developed international markets (such as France, Germany, and Japan, but excluding the US and Canada). Opportunities for diversification also exist within smaller-cap domestic companies. As of January 2025, the Russell 2000 Index, which includes approximately 2,000 of the smallest publicly traded companies in the US, had an ~11% weight to the tech sector.

As such, whereas technology dominates the investment landscape within US large and mega-cap stocks, international and smaller-cap stocks offer investors potentially attractive opportunities for diversification, as well as a risk/return profile less determined by a single cohort of companies, many of which are intertwined. Netflix, for example, is a significant customer of Amazon’s. Thus, in our view, investors who choose to invest in passive investment vehicles (such as funds linked to the S&P 500 Index) should be actively aware of the concentration risks that come with them. 

For more information, please contact your advisor.