This chart comes from a research report by Bank of America (BofA), with the core metric being "Concentration Level," specifically the market capitalization share of a particular sector/top stocks within the relevant index. Essentially, it is the same as the CRn (industry concentration ratio) indicator commonly used in finance.

1. How to interpret the indicator?

It measures the market share of a popular sector/top stock portfolio within the entire market (or mainstream index):

• For example, the "Railroads" in the chart refers to the proportion of U.S. railroad stocks in the total U.S. stock market capitalization that year;

• "Nifty Fifty" represents the share of popular blue-chip stocks in the S&P 500 during the 1970s;

• "AI Big 10" refers to the current top 10 AI-related leading stocks (Magnificent 7 + AVGO, MU, AMD) as a percentage of the S&P 500 market cap.

The higher this share, the more market funds are "herding," concentrated in a few stocks/sectors.
2. What is the use of this indicator?

It is a key signal for judging market bubbles and systemic risk, mainly serving three purposes:

1. Identifying the peak of "herding bubble"
Historically, several famous bubbles saw concentration levels exceeding 40%:

◦ 19th-century railroad bubble: peak at 63%;

◦ 1970s "Nifty Fifty" bubble: about 40%;

◦ 1980s Japanese stock market bubble: about 44%;

◦ 2000 internet bubble: tech and telecom stocks about 41%.
When concentration exceeds 40%, it indicates excessive fund concentration, significantly increasing the risk of subsequent bubble bursts.

2. Assessing "structural risk" in the market
When a few stocks/sectors dominate most of the index weight, the index's rise and fall can be completely driven by these targets. For example, the current S&P 500's movement is almost entirely determined by AI leaders. If these stocks decline, the index will be directly dragged down, representing a typical "index distortion" risk.

3. Providing risk alerts to investors
For index fund investors, this means that what appears to be diversified investment is actually heavily reliant on a few AI stocks. When concentration reaches historical highs, caution is needed for the risk of herding breaking down and style shifts.
3. Current signals in the AI sector

The green line in the chart shows that the current "AI Big 10" market cap share has approached 40%, matching the concentration levels seen during several major bubbles in history.
This indicates that the current herding level in U.S. stocks toward AI has reached an extreme comparable to the internet bubble, Japanese bubble, and Nifty Fifty bubble, serving as a strong risk warning signal.