AI Impact On Corporate Growth Seen As Limited Outside Big Tech

Anthropic PBC and Altruist Corp.'s new artificial intelligence models recently upended multiple industries, leaving Wall Street in search of where exactly the productivity-boosting promise of AI will translate into higher corporate earnings.

It turns out, not many corners of the market will see the benefit that a handful of technology high-flyers have experienced -- at least based on what Wall Street prognosticators have penciled in for profit growth this year. 

Estimates for 2026 earnings growth in the so-called Magnificent Seven companies -- a group that includes Microsoft Corp. and Alphabet Inc. -- has gone up to 18 per cent now from 14 per cent in the aftermath of a tariff-related selloff in May. For the remaining 493 companies in the S&P 500 Index, however, expectations have gone in the opposite direction, falling to 11 per cent from 12.5 per cent during the same time, data compiled by Bloomberg Intelligence show.

Wall Street consensus "does not expect AI to improve profitability for corporate America outside the tech sector," Torsten Slok, Apollo Global Management's chief economist, said in a note. "There are no signs of AI boosting profit margins for companies outside the tech sector." 

Without tech, the US stock benchmark's earnings would grow by 7.7 per cent this year, or roughly half of its projected 14 per cent expansion with its largest sector, according to BI data.

To find corners of the market where AI is expected to spur more meaningful, productivity-driven earnings growth, Citigroup Global Markets Inc. is encouraging investors to look outside of the S&P 500, at namely small- and mid-cap names known as AI enablers.

Earnings revisions for that cohort are up 13 per cent in the last nine months, data compiled by Citi show, which is ahead of a similar group of larger cap names at 12 per cent.

"The hidden story in all of this -- regardless of whether it's technology or the physical components of AI -- is that growth is broadening down cap," said Drew Pettit, US equity strategist at Citigroup Global Markets.

Right now, the earnings growth that investors are seeing from firms that are viewed as AI enablers is a direct result of the massive capital spending plans of mega-cap technology companies. 

Coherent Corp., Pure Storage Inc., nVent Electric Plc and Lumentum Holdings Inc. -- all of which are included in Citi's small- and mid-cap AI enablers basket of stocks -- are all up so far this year. Lumentum shares have climbed 63 per cent year to date.

Similarly, over the last few weeks shares of generator maker Generac Holdings Inc. and air conditioner maker Comfort Systems USA Inc. have climbed to records as they are seen as beneficiaries of an AI buildout. After all, data centers and cooling systems need backup power sources too.

Large portions of the utilities and industrials sectors are expected to see earnings growth "from the capex necessary for the hyperscaler buildout," said Michael Casper, an analyst with Bloomberg Intelligence. 

Earnings in the utilities and industrials sectors are set to grow at 7.7 per cent and 11 per cent, respectively, in 2026, thanks in part to the hundreds of billions tech firms are spending to build and power new data centers. Still, that is in stark contrast to the S&P 500 Information Technology sector, which is set to grow earnings at 32 per cent this year, according to data compiled by Bloomberg Intelligence.

It's also worth noting that the gains in those sectors are tied to others spending money, "not some productivity/margin gain from AI," Casper added.

For now, earnings growth momentum will remain concentrated in tech. Truist Advisory Services data shows tech stocks are seeing the most positive earnings estimate revisions of any of the 11 sectors in the last four months.

"Earnings are going up and they're up stronger than anyone else," said Keith Lerner, chief investment officer and chief market strategist at Truist.

To be sure, the companies that are helping drive S&P 500 earnings growth higher are also the ones weighing on its performance. Shares of Microsoft, Amazon and Apple Inc. have been the three largest drags on the US stock benchmark so far this year. The Magnificent Seven is down 7 per cent in that period, according to a Bloomberg gauge of the group. 

Sam Stovall, chief investment strategist at CFRA, said the largest tech names are selling off because investors have been questioning both their rich valuations and how the group's earnings stack up against their massive spending plans. Nvidia Corp., which has lagged the S&P 500 since the start of 2026, reports earnings next week. 

"Sooner or later, those mega-cap tech stocks are going to start showing smaller and smaller gains," said Stovall.