Is It All One Big AI Trade?
Artificial intelligence is the buzzword everywhere. Tech indices are up sharply year-to-date, hyperscalers are expected to spend over $750 billion on capex (an estimate that keeps rising), and leading LLM companies have grown revenue at an unbelievable pace, with one reportedly lifting its annualized run rate from $9 billion to $47 billion in about six months. This follows two years of 20%-plus equity returns, amid geopolitical conflict, tariffs, a severe energy shock and consumer confidence near historic lows, so it is understandable that many investors feel uneasy.
AI is a broad ecosystem, not a narrow trade
Much attention has gone to chips and memory, and the semis index is up 39% year-to-date as its net income becomes a larger share of the broad market. But the strength is not confined to one corner. An analysis of five AI baskets spanning 148 companies across the value chain (data centers, chips, memory, cooling, hyperscalers, electrification, software) found that 70% of names are up, the median company is up over 20%, eight of 11 sectors are represented, 40% of names are ex-tech, and over two-thirds of sub-industries are positive. AI is a distributed theme.
AI is not the only success story
Geopolitics matters too. With conflict in the Middle East, energy is the top-performing sector on elevated prices, an idiosyncratic driver that could reverse. More durable themes are contributing as well: nearshoring is lifting industrials, while parts of healthcare, financials and materials have performed. We expect 10 of 11 sectors to post positive earnings growth this season. Like email and mobile before it, AI will eventually become inseparable from corporate productivity and the broader market. We are just not there yet.
What this means for your portfolio
The AI story is real, but diversification remains critical. Encouragingly, when semiconductors were “risk-off” this year, other sectors often were not, so other holdings tended to hold up better. Breadth is also improving, and markets are not tech-blind: after years of near-perfect correlation, semiconductors and software have diverged as investors reassess AI winners.
Divergence is emerging among hyperscalers too. Markets are increasingly wary of sustained heavy spend as these firms draw down cash flows. One recently guided capex higher and reported its first negative free cash flow quarter since its IPO. Long term, hyperscalers’ returns on capex will likely be correlated with the AI ecosystem’s returns.
We think we are only in the early innings of the AI cycle, and its reach will extend well beyond technology.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “Is it all one big AI trade?” Dana Harlap, global investment strategist July 24, 2026
