By Rodrigo Campos
NEW YORK (Reuters) - Technology shares have led U.S. stocks to record highs and are expected to continue to rise, but as market value becomes concentrated in the largest companies, some are beginning to look for the next rally leader.
The technology sector of the S&P 500 <.SPLRCT> has risen roughly 20 percent so far in 2017, led by Apple <AAPL.O>, Alphabet <GOOGL.O>, Facebook <FB.O> and Microsoft <MSFT.O>.
The only other company with comparable gains in market value this year is Amazon <AMZN.O>, a market darling not in the tech sector despite being a big player in cloud services and data storage.
"These are the dominant players in their specific spaces and the hottest areas in tech," said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, highlighting their exposure to the cloud and artificial intelligence.
"You will continue to see money flowing into those names. People want to be exposed to the hottest areas," he said.
(To view a graphic on 'The Five Horsemen: growing influence of largest technology companies' click http://reut.rs/2sntpYb)
Active funds have continued to throw their money behind the leaders with a record overweight on the technology sector, according to BofA/Merrill Lynch data going back to 2008.
But more than a third of the 2017 gains in the S&P 500 have come from these five companies, and the concentration of the advance has some investors jittery.
"Given how significant the (large cap) leadership has been year to date, I kind of think you need to find another group to produce that leadership," said Jim Tierney, chief investment officer of concentrated U.S. growth at AllianceBernstein in New York.
Echoing Dell[DI.UL], Cisco <CSCO.O>, Intel <INTC.O> and yes, Microsoft itself, the leaders of the Y2K tech boom, these new "five horsemen" have added more than $612 billion in value to the stock market this year. Their 2017 gains alone could buy the 85 smallest companies of the S&P 500.
Their combined value, near $3 trillion, is not far from the market value of all the other components of the Nasdaq 100.
NOT THAT EXPENSIVE, BUT...
This tech rally has come hand in hand with heightened expectations for profits. Investors are currently paying $18.50 for every $1 in earnings expected over the next 12 months in the sector, compared to the more than $40 they paid during the dot-com bubble and even the $20-plus seen during the most recent market peak in 2007.