Technology stocks, specifically the Magnificent Seven, powered the S&P 500 higher over the past three years. And though investors rotated out of some of these players earlier this year, that move may have been temporary. It’s important to remember that the artificial intelligence (AI) story that drove the gains in recent years is far from over. In fact, it may just be getting started as AI today makes its way from the research lab into real-world applications.
This year represents a key moment in the story as major tech companies pour investment into infrastructure build-out — not to serve anticipated demand, but instead to keep up with current customer commitments. Tech giants Amazon (NASDAQ: AMZN), Alphabet, Microsoft, and Meta Platforms plan on spending almost $700 billion on this ramp-up in 2026.
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Against this backdrop, my prediction is that AI infrastructure stocks will crush the S&P 500 this year. Let’s check out the full story.
Image source: Getty Images.
What’s AI infrastructure?
We’ll start by talking about AI infrastructure. What is it exactly? It includes all of the elements that make AI training and use possible, from chips to servers, networking equipment, and complete data centers. The tech giants I mentioned above are infrastructure players, as are chip giant Nvidia and networking powerhouse Broadcom. And these are just a few examples.
Now, let’s consider what’s happened so far in this AI boom. A few years ago, investors began snapping up AI stocks as they realized the technology’s potential. Applied in a variety of ways and across industries and into our daily lives, AI could help companies and individuals save time and money — and become more innovative. All of this is fantastic news for corporate earnings. The winners will be companies that develop and sell AI, as well as those that use it, and investors aimed to bet on these players as early as possible.
The first stages of AI involved the training of large language models, and infrastructure companies clearly benefited as customers rushed to them for chips, servers, and other products and services. This has helped companies such as Nvidia and Broadcom report revenue that exploded higher quarter after quarter.
A task that will continue
But training isn’t a one-time event. It’s a task that will continue, and on top of that, these freshly trained models will then be put to work on real-world problems. Here, they need chips, networking equipment, and more to help them through the “thinking” process so that they can solve these problems.
As these models are applied more frequently and in more sophisticated and precise ways, companies will need more of the products and services offered by a wide range of infrastructure companies.
This whole process is starting to gain momentum right now. Amazon recently offered an example, as it spoke of its spending plans — the company forecasts capital spending of $200 billion this year to serve the needs of Amazon Web Services (AWS) customers. AWS is the world’s biggest cloud services provider, offering both AI and non-AI products and services. The company says it aims to monetize a good deal of this investment over the next two years, given current agreements with customers.
The message from AI giants
Recent messages from chipmakers, networking companies, and other data center giants have been the same: Demand for AI capacity is soaring. This suggests that these companies will continue to report explosive growth in the quarters to come. And reports we’ve seen so far this quarter support this idea. Alphabet, Amazon, and Meta pushed S&P 500 earnings growth to more than 27%, which would be the highest level since 2021, FactSet senior earnings analyst John Butters wrote in a May 4 note.
Meanwhile, Morningstar suggests AI stocks are trading at their biggest discount in seven years, according to a CNBC report.
A look at the price of several AI giants in relation to earnings estimates shows that valuation has indeed come down significantly.
Meanwhile, we’re entering a new phase of AI growth: Today and into the future, companies are using AI, resulting in strong revenue gains for infrastructure players. And infrastructure players’ major investment in capacity, based on customer commitments, suggests this revenue opportunity will be big.
This growth, along with attractive valuations, may prompt investors to get in on AI stocks — we’ve already seen some of that momentum in recent weeks — and that’s why my prediction is that these infrastructure players will crush the market in 2026.
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Adria Cimino has positions in Amazon and Oracle. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool has a disclosure policy.
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