Seeking Alpha·2026-01-08 11:00Market Overview - The S&P 500 Index rose 17.9% in 2025, while the equal-weighted S&P 500 Index gained 11.4% [2] - The Magnificent Seven stocks increased by 24.9% in 2025 [2] - Since the launch of ChatGPT, the cap-weighted S&P 500 has nearly doubled the gains of its equal-weighted counterpart, with the Magnificent Seven surging 332% [3] Performance Analysis - The cap-weighted S&P 500 delivered an annualized total return of 23.0% from December 31, 2022, to December 31, 2025, compared to 12.7% for the equal-weighted S&P 500 [4] - The market is characterized by significant concentration, making it the most concentrated equity market in American history [4] Investment Strategy - The ClearBridge Dividend Strategy has seen healthy gains due to investments in AI-related companies like Alphabet, Broadcom, Meta, Microsoft, and Oracle, although it has not matched the cap-weighted S&P 500's performance [10] - The strategy limits individual holdings to 3%-5% of the portfolio and caps sector exposures at 15%-20%, while the IT sector currently represents 34% of the market [11] AI Market Dynamics - AI is expected to radically change various sectors, but not all AI stocks are considered good investments due to high valuations relative to current revenues [13] - Key questions remain regarding the future of large language models and the competitive landscape, particularly between U.S. and Chinese companies [14] Company-Specific Insights - Oracle's shift to a capital-intensive AI data center business raises concerns about its balance sheet and investment-grade credit rating, leading to a reduction in its position [19] - Broadcom's position as a leading ASICS chip provider allows it to compete effectively in the AI market, with a strategy that aligns with its core competencies [20] Future Outlook - The ClearBridge Dividend Strategy anticipates continued focus on AI in 2026 but aims to find opportunities in overlooked market segments [26] - The strategy continues to trade at a significant discount to the broader market, with an average holding growing its dividend by 10% over the last 12 months [27]