Proof of Concept: S&P 500 Posts Record Earnings as AI Monetization Arrives

U.S. large-cap stocks rallied on Friday, closing out their sixth straight green week on a strong note. The S&P 500 (SPX) and the Nasdaq-100 (NDX) hit records for the third time last week, posting weekly gains of 2.33% and 5.50%, respectively. The Dow Jones Industrial Average (DJIA) edged up 0.22% for the week, helped by a rally in NVIDIA (NVDA), which reached an all-time high on Friday.

An unexpectedly strong April jobs report boosted investor sentiment, further diminishing lingering fears about the economy and labor market – and dampening the odds of a Fed rate cut this year. Along with on-and-off spikes in Middle East tensions and the rollercoaster in oil prices, the prospect of “higher for longer” rates could have created a less supportive short-term setup than what we saw last week, but the markets brushed off these concerns.

The primary drivers of the current leg of the rally remain AI infrastructure enthusiasm and strong corporate earnings, especially in tech – hence the DJIA’s lag. Technology stocks weigh less than 20% of the blue-chip index, while accounting for over 45% of the S&P 500 when giants like Alphabet (GOOGL), Amazon (AMZN), and Meta Platforms (META) are included (despite their traditional listings under Communications and Consumer Discretionary, these are, from an investing standpoint, unambiguously tech stocks).

The past two weeks have been the busiest stretch of the earnings season, with 125 index members reporting last week alone. With roughly 90% of results in, the season has shaped up as one of the most impressive in recent years. About 85% of companies have surpassed earnings estimates – well above long-term averages – and the extent of the beats exceeds both the five- and ten-year norms. First-quarter earnings growth has reached 27.7%. The last time U.S. corporations posted comparable growth was during the post-COVID rebound in 2021, when comparisons were skewed by 2020 lockdowns. Going further back, corporate America has never notched these rates outside of post-recession recoveries.

Near-30% earnings growth on top of already-strong year-ago numbers is being read by many as confirmation that massive returns on AI capex are arriving – with Q1 2026 as the first installment. That growth and the accompanying margin expansion help quell fears of a dotcom-style bubble. The S&P 500’s trailing P/E is more than a third above its 10-year average, but its forward multiple sits just 10% above the historical trendline – a modest premium that barely accounts for the earnings acceleration now underway.

That acceleration is clearest in profitability: net profit margins for S&P 500 companies recently hit an all-time record of 14.7%, fueled by efficiency gains and AI-driven productivity. Nearly all of that margin expansion belongs to the Technology sector, with some support from Utilities, which benefited from infrastructure modernization and AI-driven grid management. Stock performance tells the same story: Alphabet, NVIDIA, Amazon, Broadcom (AVGO), and Apple (AAPL) have accounted for roughly half of the entire S&P 500’s gain since the beginning of April. Let that sink in: five stocks have pulled as much weight as the other 498 combined – with the rally leaders driving the index 94 times harder than the median name.

Four of those five – excluding Apple, which was driven mainly by reduced tariff fears – are pure AI plays in analysts’ eyes. NVIDIA supplies the GPUs and systems; Google and Amazon capitalize on both the cloud and proprietary silicon; Broadcom builds custom chips for Google and Meta, alongside other AI hardware. The question that has hung over markets since hyperscalers began pouring billions into AI buildout – “where are the returns on that capex?” – is being answered in real time.

The concentration is notable, but the rally in tech – particularly semiconductors – is broad. The S&P 500’s roughly 13% gain since April 1 looks modest next to the 53% surge in the iShares Semiconductor ETF (SOXX), led by Micron (MU) and Intel (INTC). The rally is global: the world’s chip industry has added $3.8 trillion in market cap over the past six weeks, though it is far stronger in the U.S., where advanced-tech companies are concentrated.

Morgan Stanley (MS) estimates that nearly $3 trillion in AI-related infrastructure investment will flow through the global economy by 2028, with more than 80% of that spending still ahead. AI capex is already reshaping markets, and it is clear the technology is no longer just an investment theme – it is a key macro driver of the economy and geopolitics. Prior quarters hinted at AI’s earnings potential; Q1 2026 is the first to confirm it at scale – in growth rates, in margins, in stock performance – and to draw a sharp line between winners and losers on a single test: AI monetization.