Global equity markets are defying geopolitical instability and rising interest rates as corporate earnings rise from massive investments in artificial intelligence and energy infrastructure.
While experts previously anticipated poor market performance due to conflicts in Ukraine and Iran, inflation near 4%, and rising bond yields, corporate results have consistently outperformed these negative indicators.
The current environment is characterized by a boom in capital expenditure across the United States, spanning AI, energy, electrical grid development, and defense. This influx of capital has created a high-demand environment for essential components such as chips, cooling systems, generators, turbines, and cables. Manufacturers have gained pricing power and expanded profit margins because demand currently exceeds supply.
Companies such as Siemens Energy, ABB, and Hitachi Energy have reportedly sold out their production capacity for critical electrical equipment through at least 2029, with some lead times for delivery stretching to five years. In September, the Swiss firm ABB reported the highest operating margin in its history, a trend mirrored by many suppliers involved in the AI infrastructure ecosystem.
Data indicates that the technology sector and the AI semiconductor ecosystem are responsible for two-thirds of the total earnings growth within the S&P 500. Globally, semiconductor manufacturers recorded a 145% increase in results through September. Despite these gains, the long-term sustainability of this growth remains in question.
Experts note that while the deployment of AI and energy infrastructure may continue until 2030 or 2031, the current wave of capital investment is inherently temporary. Once the infrastructure is fully deployed, capital expenditure is expected to fall as spending moves toward lower-cost maintenance and repair activities.
The price-to-earnings (PER) ratio for the S&P 500 has compressed from 22.5 to 19, suggesting that companies are trading at lower multiples relative to their current earnings than they were at the start of the year. The primary uncertainty remains how long these elevated profit levels can persist before returning to a more sustainable long-term trajectory.
AI-Related Values Drive Massive Profit Increases
According to Renta 4, the expected profit increase from just 19 AI-related values—including Amazon, Alphabet, Broadcom, Meta, Microsoft, Nvidia, Oracle, and Palantir, among others—will exceed $700 billion. This contrasts with a profit increase of less than $500 billion across the remainder of the S&P 500 index.
Looking ahead, the market continues to face years of heavy investment requirements. Jesús Sánchez-Quiñones González at Renta 4 says that, alongside artificial intelligence, investors are directing capital toward energy infrastructure, electrical grid expansion, and the defense sector.
