Jefferies Backs AI Stock Rally as Earnings Growth Fuels 80% of S&P 500 Gains

Key Takeaways

• Over 80% of the S&P 500’s 2026 gains stem from AI-related stocks; without them, the index shows only 2% growth
• Jefferies analysts attribute the surge to genuine earnings expansion rather than overvalued multiples, labeling AI “the cheapest sector to own” on a PEG ratio 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 achieved $1 trillion market capitalization, entering the elite group alongside Nvidia, TSMC, and Broadcom in AI infrastructure
• First quarter 2026 saw 86% of S&P 500 firms exceed earnings forecasts — the strongest performance since the pandemic — led by AI and commodity sectors

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Artificial intelligence companies are shouldering the bulk of stock market gains throughout 2026. Research from Jefferies reveals these stocks contribute over 80% of the S&P 500’s year-to-date performance. Remove AI from the calculation, and the benchmark index registers merely 2% growth.

E-Mini S&P 500 Jun 26 (ES=F)

Such market concentration raises concerns among some market participants. However, Jefferies presents compelling evidence supporting the rally’s foundation.

The firm’s quantitative analysts examined the underlying factors propelling these gains. Their conclusion: legitimate earnings expansion, not valuation inflation, fuels the advance. This differentiation proves critical for investors assessing bubble risk.

The AI basket’s forward earnings projections for 2026 have surged more than 30% since the middle of last year. Projections show compound annual earnings expansion of 38.5% for AI-focused companies spanning 2026 through 2027. Meanwhile, non-AI sectors project growth of merely 11.9%.

Despite robust growth expectations, AI stocks trade around 25 times forward earnings. This multiple sits beneath the sector’s one standard deviation threshold. The price-to-earnings-growth metric stands at just 0.6 times.

Performance Varies Across AI Subsectors

The AI sector shows considerable performance dispersion. AI server manufacturers, optical component suppliers, and memory producers have delivered superior returns this year. Cloud hyperscalers and chip architecture firms have underperformed.

From a valuation perspective, memory and compute infrastructure appear most compelling on a PEG basis. Semiconductor equipment makers and chip designers carry higher relative valuations.

First quarter 2026 earnings results provided additional insight. Approximately 86% of S&P 500 constituents surpassed earnings expectations — the highest rate since COVID-19, rising from 75% in the prior quarter. Revenue beats reached 82%.

The caveat: most positive surprises failed to trigger stock outperformance. Shares typically didn’t rally after beating estimates, except in AI and select other industries. Earnings misses faced severe punishment, suggesting elevated investor expectations broadly.

Jefferies analyzed roughly 330 earnings conference calls through the AlphaSense platform. Management commentary reflected 95% optimism. Analyst sentiment also strengthened, with 58% of calls exhibiting positive tone, compared to 48% during Q4 2025.

One recurring concern emerged from those discussions: the U.S.-Iran military conflict. Approximately 44% of companies referenced it as a headwind, citing supply chain complications and dampened consumer confidence.

Samsung Reaches $1 Trillion Milestone

The AI-driven rally extends beyond software developers and chip designers. Hardware manufacturers are experiencing substantial gains too. Samsung Electronics recently surpassed $1 trillion in market capitalization, entering this exclusive tier.

Samsung now stands alongside Nvidia, TSMC, and Broadcom — enterprises producing the processors, memory modules, and infrastructure supporting AI deployment. Samsung’s achievement stems from its high-bandwidth memory production, essential for AI computing systems.

The trillion-dollar club previously centered on consumer technology. Apple, Amazon, Microsoft, Alphabet, Meta, and Tesla reached this threshold through smartphones, cloud computing, e-commerce, and software platforms.

The current expansion wave emphasizes hardware infrastructure. Nvidia crossed $1 trillion in May 2023. TSMC followed throughout 2024. Broadcom joined later that year. Samsung now adds memory technology to this roster.

Berkshire Hathaway and Walmart have also achieved trillion-dollar valuations, alongside Eli Lilly driven by pharmaceutical demand and energy majors Saudi Aramco and PetroChina. Yet the most dynamic cluster currently centers on AI infrastructure.

Earnings revisions across the S&P 500 have increased 6% during the past three months. Excluding AI and commodity sectors, that figure contracts to merely 0.3%.

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