AI Stocks Continue to Dominate the S&P 500 in 2026
Artificial intelligence stocks have accounted for more than 80% of the S&P 500’s gains so far in 2026, raising questions among investors about whether the powerful rally can continue.
However, analysts at Jefferies believe the AI-driven market surge remains fundamentally supported rather than purely speculative.
According to the firm’s quantitative strategy team, the rally is being fueled primarily by strong earnings growth instead of excessive valuation expansion, making the trend more sustainable over the long term.
Jefferies noted that without the contribution from AI-related companies, the S&P 500 would only be up around 2% this year.
AI Earnings Growth Remains Exceptionally Strong
The report highlighted that forward earnings estimates for Jefferies’ AI stock basket have surged more than 30% since mid-2025.
Analysts currently expect AI companies to deliver a compound annual earnings-per-share (EPS) growth rate of 38.5% between 2026 and 2027. In comparison, non-AI sectors are projected to grow earnings by only 11.9%.
Despite this rapid growth, Jefferies argues that AI stocks are not excessively expensive relative to their earnings outlook.
The AI basket is currently trading at roughly 25 times forward earnings, remaining below its historical valuation extremes. It also carries a price-to-earnings-growth (PEG) ratio of just 0.6, which Jefferies described as highly attractive.
The firm even stated that AI is currently “the cheapest sector to own in the U.S.” when evaluated on a PEG basis.
Performance Within the AI Sector Has Been Uneven
While the broader AI theme has performed strongly, gains across the sector have varied significantly.
According to Jefferies, companies involved in AI servers, optical components, and memory technologies have led performance this year. Meanwhile, hyperscalers and chip designers have lagged behind the strongest-performing sub-sectors.
The bank added that memory and compute-related stocks currently appear the most attractively valued, while semiconductor equipment manufacturers and chip design companies look relatively more expensive.
Strong Earnings Season Supports the AI Rally
The latest first-quarter earnings season also reinforced bullish sentiment surrounding AI-related stocks.
Approximately 86% of companies exceeded earnings expectations, marking the strongest earnings beat rate since the post-pandemic period and up sharply from 75% in the previous quarter.
Revenue surprises were also impressive, with 82% of companies reporting sales above analyst forecasts.
Despite the strong results, Jefferies noted that the broader stock market has not consistently rewarded positive earnings surprises outside of AI and a few select sectors.
At the same time, companies that missed expectations were punished heavily by investors, highlighting how elevated market expectations remain.
Corporate Sentiment Improves Despite Geopolitical Risks
Jefferies also analyzed around 330 corporate earnings calls using the AlphaSense platform and found management optimism remained very strong.
According to the data, management sentiment reached 95%, while analyst sentiment also improved noticeably. Around 58% of earnings calls carried a positive tone, compared with 48% during the fourth quarter of 2025.
However, geopolitical concerns remain an important risk factor for markets.
The ongoing U.S.-Iran conflict was cited as a negative issue by 44% of companies surveyed, with businesses warning about potential supply chain disruptions and weaker consumer sentiment.
Broader Market Growth Remains Weak Outside AI
Outside of artificial intelligence and commodity-related sectors, overall earnings momentum within the S&P 500 remains relatively subdued.
Jefferies said aggregate S&P 500 earnings revisions over the past three months totaled 6%. However, once AI and commodity sectors are excluded, earnings revisions fall sharply to just 0.3%.
The data highlights how heavily current U.S. equity market performance continues to depend on the artificial intelligence boom.
