Key Takeaways
- More than 80% of the S&P 500’s 2026 gains come from AI stocks; without them, the index would be up only 2%
- According to Jefferies, the surge is fueled by fundamental earnings expansion, not valuation inflation, making AI “the cheapest sector” on a PEG basis
- Forward earnings projections for AI companies have climbed over 30% since mid-2025, with expected EPS growth of 38.5% annually through 2027
- Samsung Electronics reached $1 trillion in market value, joining Nvidia, TSMC, and Broadcom among elite AI infrastructure players
- Q1 2026 saw 86% of S&P 500 firms exceed earnings forecasts — the highest rate since the pandemic — led by AI and commodity sectors
Artificial intelligence companies are powering the U.S. equity market’s performance in 2026. Data from Jefferies shows these stocks have generated over 80% of the S&P 500’s year-to-date returns. Strip away the AI component, and the benchmark index has advanced a mere 2%.
Such heavy concentration has sparked concern among market observers. However, Jefferies maintains there’s substantial justification for this dynamic.
The firm’s quantitative analysts examined the underlying drivers of these returns. Their conclusion: fundamental earnings expansion, not multiple expansion, is fueling the advance. This is a critical distinction for investors assessing bubble risk.
Forward earnings projections for the AI basket have surged more than 30% since the middle of 2025. Wall Street analysts forecast a compound annual earnings growth rate of 38.5% for AI-focused companies through 2027. By contrast, non-AI sectors are expected to grow earnings at just 11.9% annually.
Yet despite this robust growth trajectory, AI stocks trade at approximately 25 times forward earnings. That multiple sits below the group’s one-standard-deviation historical average. The price-to-earnings-growth ratio stands at a modest 0.6 times.
“AI is the cheapest sector to own in the U.S.,” Jefferies’ strategy team noted in their recent report.
Performance Divergence Within AI Segment
Not all AI-related stocks have delivered uniform results. AI server manufacturers, optical networking components, and memory chip makers have posted the strongest gains year-to-date. Cloud hyperscalers and chip designers have trailed.
From a valuation perspective, memory and compute infrastructure stocks appear most compelling on a PEG ratio basis. Semiconductor equipment manufacturers and chip design firms carry relatively richer valuations.
First quarter 2026 earnings season provided additional insight. An impressive 86% of S&P 500 constituents exceeded earnings expectations — the highest beat rate since before COVID-19, compared to 75% in the prior quarter. Revenue beats reached 82%.
The caveat: most earnings beats failed to generate positive stock reactions. Companies generally didn’t outperform following better-than-expected results, except within AI and select other sectors. Misses faced severe punishment, suggesting elevated investor expectations throughout the market.
Jefferies analyzed approximately 330 earnings conference calls via the AlphaSense platform. Management sentiment registered 95% optimistic. Analyst tone also improved, with 58% of calls reflecting positive sentiment versus 48% in Q4 2025.
One risk factor emerged consistently: the U.S.-Iran geopolitical situation. Roughly 44% of companies mentioned it as a headwind, citing supply chain complications and dampened consumer confidence.
Samsung Enters the Trillion-Dollar Tier
The AI boom isn’t exclusively benefiting software developers and chip architects. Hardware manufacturers are experiencing significant gains as well. Samsung Electronics recently surpassed $1 trillion in market capitalization, becoming the latest AI-connected enterprise to achieve this milestone.
Samsung now stands alongside Nvidia, TSMC, and Broadcom — the companies producing processors, memory modules, and infrastructure enabling AI deployment. Samsung’s ascent stems largely from its high-bandwidth memory products, which are integral to AI computing systems.
The trillion-dollar club was historically dominated by consumer-facing platforms. Apple, Amazon, Microsoft, Alphabet, Meta, and Tesla reached that threshold through smartphones, cloud services, e-commerce, and software ecosystems.
The current wave skews toward hardware. Nvidia breached $1 trillion in May 2023. TSMC followed in 2024. Broadcom joined later that same year. Samsung now adds memory manufacturing to the roster.
Berkshire Hathaway and Walmart have also entered the club, alongside Eli Lilly driven by pharmaceutical demand and energy behemoths Saudi Aramco and PetroChina. Yet the most dynamic cluster currently remains AI infrastructure.
Earnings estimate revisions across the S&P 500 have climbed 6% over the past three months. Excluding AI and commodities, that figure plummets to just 0.3%.
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