Christopher Combs, Chief Investment Officer, Silicon Valley Capital Partners
February 18, 2026
Artificial intelligence continues to dominate the equity market narrative. Capital expenditure by the largest technology companies is running at historically elevated levels, while rapid advances in model capability have reinforced expectations that AI will ultimately lift productivity across a wide range of industries.
Yet forward earnings data suggest that the financial impact of AI remains far more concentrated than the broader narrative implies. Estimates from Bloomberg Intelligence, FactSet Research and Citigroup Global Markets point to a pattern that has become increasingly pronounced over the past year: AI-related profit growth is accruing primarily to a small group of large technology firms, with limited spillover to the rest of the market.
Three structural features stand out.
Mega-cap technology continues to dominate earnings growth
Forward earnings expectations remain heavily skewed toward the largest technology companies. According to Bloomberg Intelligence, projected earnings growth for the so‑called “Magnificent Seven” in 2026 has risen to around the high‑teens, recovering from the pullback seen earlier in the year following tariff-related volatility (Bloomberg Intelligence, 2025).
By contrast, earnings expectations for the remainder of the S&P 500 have drifted lower. Bottom‑up consensus data compiled by FactSet show that projected earnings growth for the other 493 companies has slipped to the low double digits, down from earlier in the year (FactSet Research, 2025a).
The sector breakdown reinforces this divergence. FactSet data indicate that the information technology sector is expected to deliver earnings growth in excess of 30 per cent year on year, far outpacing all other sectors. Excluding technology, aggregate S&P 500 earnings growth falls toward the high single digits (FactSet Research, 2025b).
In effect, a disproportionate share of index‑level earnings growth is being generated by a narrow group of companies. Without mega‑cap technology, projected S&P 500 earnings growth would be materially lower. At this stage, the benefits of AI are accruing primarily to platform owners, compute providers and infrastructure hyperscalers, with little evidence of broad‑based margin expansion elsewhere.
Second-order beneficiaries reflect capital spending rather than productivity
Outside technology, earnings momentum is visible in selected sectors, though its drivers are largely cyclical. Bloomberg Intelligence forecasts high‑single‑digit earnings growth for utilities and low‑double‑digit growth for industrials, reflecting demand linked to AI‑related infrastructure investment rather than operational transformation (Bloomberg Intelligence, 2025).
These gains are tied to hyperscaler capital expenditure on data centers, power generation, cooling systems and semiconductor supply chains. Citigroup analysis shows that earnings revisions for small- and mid‑capitalization “AI enablers” have risen by approximately 13 per cent over the past nine months, marginally outpacing large‑cap peers (Citigroup Global Markets, 2025).
However, this improvement reflects revenue growth driven by external spending rather than AI‑led productivity gains within these firms. The distinction is material. Productivity-driven earnings growth typically results in sustained margin expansion, while capital‑expenditure-driven growth remains dependent on continued investment by a limited number of large customers.
Sector‑level margin data compiled by FactSet show little evidence so far of AI-driven margin improvement across consumer companies, financial institutions or healthcare providers (FactSet Research, 2025c). Current earnings momentum in utilities and industrials appears to reflect spending transmission, not a broad diffusion of AI-enabled efficiency.
Narrow earnings breadth heightens valuation sensitivity
The concentration of earnings growth has implications for market dynamics. FactSet forward 12‑month earnings revision data show that technology continues to account for the majority of positive revisions, with earnings breadth remaining narrow compared with previous economic expansions (FactSet Research, 2025d).
At the same time, several large AI‑exposed companies have underperformed the broader market despite upward earnings revisions. Bloomberg data suggest that valuation concerns, capital intensity and sensitivity to interest‑rate volatility have weighed on share prices even as profit expectations have improved (Bloomberg Intelligence, 2025).
When earnings growth is concentrated in a small cohort of companies, index‑level risk increases. Volatility around reporting periods tends to rise, and valuation multiples become more sensitive to changes in discount rates. In such an environment, relatively small moves in bond yields can have an outsized effect on equity performance.
AI’s contribution to corporate profits is substantial, but it remains narrow. Until consensus data begin to show sustained margin expansion across non‑technology sectors—independent of hyperscaler spending—the breadth of earnings growth is likely to remain constrained.
What investors are watching
For investors, the key signal is earnings diffusion rather than headline investment announcements. A sustained rise in margins across consumer, healthcare, financial and industrial sectors—driven by end‑demand rather than infrastructure build‑out—would indicate that AI productivity gains are spreading more broadly through the economy (FactSet Research, 2025c; Citigroup Global Markets, 2025).
For now, the evidence points to concentration rather than diffusion. Artificial intelligence is reshaping capital allocation and competitive positioning, but its impact on profitability remains confined to a relatively small part of the market.
The secular theme remains intact.
The earnings breadth does not.
Markets can sustain concentration for extended periods, but they tend to reprice quickly when that concentration either broadens decisively—or fails to do so.
References
Bloomberg Intelligence (2025) Equity Strategy and Sector Earnings Outlook. Bloomberg L.P.
Citigroup Global Markets (2025) AI Enablers and Earnings Revision Trends. Citi Research.
FactSet Research (2025a) S&P 500 Bottom-Up EPS Estimates. FactSet.
FactSet Research (2025b) Sector Earnings Growth Forecasts. FactSet.
FactSet Research (2025c) Sector Margin Trends and Profitability Analysis. FactSet.
FactSet Research (2025d) Forward 12-Month EPS Revisions and Earnings Breadth. FactSet.