The technology sector—dominated by the so-called Magnificent 7 (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla)—has driven market gains for roughly two years. These companies have become integral to everyday life and business, which helps explain their outsized influence on equity markets. That said, performance has been uneven over the past year, leaving many Canadian investors to ask whether they should continue to concentrate on the Magnificent 7 or broaden exposure to the other 493 companies that comprise the S&P 500.
I don’t see this as a binary choice. For most Canadian investors, the best approach is a balanced one: keep meaningful exposure to large-cap tech while also owning a diversified mix of sectors and companies across the S&P 500. The goal is to combine protection, income and long-term growth so a portfolio can weather market swings while still capturing opportunity.
Big tech in 2024 and how we got here
Large-cap tech and related companies staged a major comeback starting in late 2022, as central banks paused rate hikes and generative artificial intelligence—exemplified by tools such as ChatGPT—captured investor imagination. In 2023 the sector led markets higher, especially companies tied to the development and use of advanced semiconductors.
Into 2024, Big Tech extended that momentum through the early months of the year, but volatility returned in spring and again mid-summer. Periods of strong gains were followed by pullbacks that reminded investors how concentrated returns can be: a handful of mega-cap names can lift the broader market, but they can also introduce downside when sentiment shifts. As a result, many investors now wonder how much further the Magnificent 7 can grow and whether it’s time to rotate into other sectors.
Why tech and Magnificent 7 stocks may still be good investments
When I construct a portfolio I look for three core attributes: protection, dividend income and growth. Large-cap technology companies typically contribute to at least one of those pillars, and often more than one.
That doesn’t mean every investor should own all seven of the Magnificent 7. Some of those companies differ materially in business model and long-term prospects—Tesla, for example, behaves differently from Microsoft or Apple. The key is valuation and realistic expectations: even among high-multiple names, there are firms that still offer compelling long-term value. Companies such as Alphabet (Google), Meta and Amazon continue to make a strong case for long-term growth potential when considered at reasonable entry points.
Big-cap tech is deeply embedded in business operations and consumer habits—think data centres, artificial intelligence infrastructure, core software and chips. Recreating modern commerce and computing without these firms would be difficult. Because of that, technology today often plays a role similar to traditional consumer staples: broadly needed, frequently used and a central element of many diversified portfolios.
How to decide which sectors to buy
I’m a bottom-up stock picker, which means I evaluate individual companies first and use sector allocation as a risk-management tool. I don’t chase specific sectors; I seek value wherever it appears while ensuring the portfolio is balanced across industries.
For protection, I favor stable, cash-generative businesses that may not be headline-grabbing but pay reliable dividends—utilities, certain banks and established consumer staples often fit this role and can yield in the range of roughly 4% to 6% in some markets. At the same time, technology names can offer defensive characteristics through dominant platforms, recurring revenue and market-leading products—evidence from recent cycles shows tech can outperform in certain downturns.
For growth, I use a growth-at-a-reasonable-price (GARP) approach: assess price-to-earnings relative to expected earnings growth, and consider whether a company is well positioned for future expansion. Discipline here helps avoid buying hype at any valuation and encourages owning businesses with sustainable competitive advantages.
Investors should also remember that traditionally “safe” assets carry risks. Bonds, for example, are sensitive to changes in interest rates: when rates rise sharply, bond prices fall. Holding bonds to maturity can mitigate that impact, but interest-rate dynamics remain an important consideration.
What to look for in the S&P 500
Diversification and value-driven selection matter most. A portfolio without meaningful tech exposure risks missing a central source of long-term growth, but relying solely on a few mega-cap companies creates concentration risk. The S&P 500 offers breadth across sectors—technology, health care, financials and more—so a thoughtful mix can capture growth while cushioning volatility.
Markets are also broadening beyond the biggest names. Many companies across different indices have reported strong gains in recent periods, demonstrating that opportunities exist outside the top mega-caps. The practical takeaway for investors is to avoid putting all your eggs in one basket: combine large-cap tech exposure with solid holdings in other sectors that provide income, stability and diversification.
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