By Ankika Biswas

(Reuters) - The gap in returns between the S&P 500 and the index's equal-weighted counterpart is at its widest in 15 years, underscoring the need to diversify beyond AI heavyweights such as Nvidia ( NVDA ).

The S&P 500 is at record levels mostly due to a handful of megacap stocks such as Microsoft ( MSFT ) and Nvidia ( NVDA ), fueling concerns that 2024's rally could dissipate if the sentiment changes around those select AI-linked shares.

The spread in total returns between the S&P 500 and the benchmark index's equal-weighted peer widened to 10.21% in the first half of the year, according to data from S&P Dow Jones Indices.

"High valuations and lofty expectations lead to more market risks. If they fail to meet their lofty growth expectations, there will be a pullback in major indexes," Cetera Investment Management's chief market strategist Brian Klimke said.

The spread between the S&P 500 and its equal-weighted counterpart was the most since 2009, when tech stocks rebounded from a bruising selloff during the 2007-08 financial crisis.

The S&P 500's top 10 stocks are now starting to approach levels seen during the dotcom bubble when their weightage in the index accounted for a little over 40%, Klimke added.

Excluding Nvidia ( NVDA ), whose shares have more than doubled, the S&P 500 is up about 10% in the first half of 2024, and without the so-called "Magnificent Seven" stocks the benchmark index's gains are just over 6%, S&P Dow Jones Indices data showed.

Amid such concerns around lofty valuations of tech stocks, which many are now comparing to the dotcom bubble two decades ago, market participants see value in broadening their portfolio by focusing on the relatively cheaper sectors.

Dakota Wealth Management's senior portfolio manager Robert Pavlik sees value in financials, healthcare and energy stocks, among others.

"Focus on picking the best stocks and less attention to the indices," Pavlik added.

Still, many expect the gap between the two indexes to narrow going ahead, as any interest rate cut by the U.S. Federal Reserve could prop up small- and mid-cap stocks.