The US stock rally is broadening beyond mega-cap technology as earnings resilience spreads across sectors and artificial intelligence adoption translates into measurable financial gains, Morgan Stanley said.
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Morgan Stanley says 40% of AI firms see earnings gains, broadening rally
The US stock rally is broadening beyond mega-cap technology as earnings resilience spreads across sectors and artificial intelligence adoption translates into measurable financial gains, Morgan Stanley said.
The S&P 500's advance is broadening beyond mega-cap technology as earnings resilience spreads across sectors and AI adoption delivers measurable financial benefits, Morgan Stanley said.
"The equal-weight S&P 500 has outperformed its market-cap weighted counterpart since mid-May, driven by earnings revisions improving across a wider set of industries," Michael Wilson, chief equity strategist at Morgan Stanley, wrote in a report dated July 13.
The strategists identified consumer discretionary and transportation as sectors showing relative strength in earnings revision breadth. The call comes as S&P 500 companies are expected to report second-quarter earnings growth of 23.4%, according to LSEG IBES, following a 29.4% surge in the first quarter — the strongest in more than four years.
The broadening matters for positioning. The S&P 500 has climbed 9% in 2026, but its forward price-to-earnings multiple has compressed to 20.1 from 22.2 at the end of 2025, suggesting earnings — not multiple expansion — are driving the rally. The technology sector alone is expected to post 65.5% profit growth in the second quarter, raising the question of whether the rest of the market can sustain the momentum.
AI Monetization Moves From Narrative to Numbers
Morgan Stanley's analysis of corporate earnings transcripts found that 40% of companies classified as AI-application firms cited at least one quantifiable benefit from AI deployment in the second quarter, up from 37% in the first quarter and 21% a year earlier. About 25% of all S&P 500 companies disclosed at least one measurable AI-driven revenue benefit, compared with 14% in the same period last year.
"AI adoption is moving from narrative to numbers," the strategists wrote. The data suggests the technology's financial impact is broadening beyond semiconductor companies into software, enterprise services and industrial applications.
Earnings Bar Rises as Estimates Climb
Second-quarter estimates have climbed sharply from the 15.2% growth expected at the start of the year, according to LSEG. The full-year 2026 estimate now stands at 26.4% earnings growth, which would be the strongest annual profit performance since 2021.
Yet the higher bar leaves less room for error. "The risk is that Q1's exceptionally strong results led analysts to raise their estimates for the remaining three quarters by too much," Yardeni Research said in a note this week, as cited by Reuters. Any disappointments could trigger outsized selloffs in a market where valuations, while compressed, still trade above historical averages.
This article is for informational purposes only and does not constitute investment advice.
