The manufacturing purchasing managers' index (PMI) began to decline at the end of 1999; at the time it attracted little attention because services already accounted for a much larger share of the U.S. economy. During the late 1990s tech boom, many investors dismissed industrial or “old economy” firms as outdated while technology investment and growth dominated headlines.
A brief historical context
After 1994, investments in IT equipment and telecommunications grew by 15–20 percent annually, and the technology sector accounted for roughly 30 percent of economic growth. The first major warning sign came in September 2000 when Intel issued a profit warning; GDP data showed that technology equipment purchases surged 34 percent in Q2 of that year but slowed to just 1.2 percent growth in Q3.
The current uptick and AI’s role
After several years of stagnation, the manufacturing PMI began to rise at the end of 2025. Much of this recovery is linked to investments in artificial intelligence, along with factors such as some reshoring (onshoring) of manufacturing and a generally healthy economy.
Concentration behind corporate results
In the most recent earnings season, aggregated net profit for S&P 500 companies rose nearly 50 percent year-on-year. However, part of this gain reflects accounting and valuation items — described in the article as “excel money” — where companies assign investments discretionary valuations; examples include Alphabet’s and Amazon’s investments in Anthropic. Excluding those kinds of items, the underlying, organic profit growth still stands at about 30 percent.
Numbers: concentration and weights
The analysis reports that S&P 500 companies produced around $2,600 billion in profit over the year; $1,350 billion of that came from the technology sector, and roughly $950 billion is attributable to the twenty largest AI-related firms. At the same time, weakness is widespread elsewhere: about 60 percent of S&P 500 members trade at least 20 percent below their one-year highs.
Market risks and past shocks
The market has experienced multiple disruptive episodes in recent years (the article references events around spring 2026 — an attack on Iran, spring 2025 — a tariff war, autumn 2023 — concerns about higher yields, and 2022 — the correction of profitless companies). These episodes underscore that volatility and corrections are part of the market environment, but today’s situation is notable for how concentrated the growth is among AI-linked players.
Analysts’ expectations and the outlook
A 30 percent annual profit increase at the scale of these firms is likely unsustainable; analysts therefore expect more moderate annual earnings growth from 2027 onward: 10–15 percent in the United States and about 6–9 percent in Europe. Those rates would still be consistent with roughly a 10 percent annual average rise in stock prices.
The “AI premium” and diversification challenges
Many companies now publicize AI strategies, and markets have built an AI-related premium into valuations. The article’s analysis suggests that this premium is around 12 percent for European companies that are not direct AI vendors; the effect may be even larger in the United States.
That complicates diversification: it is hard to find sectors or individual stocks truly insulated from AI, and those that are distant from AI exposure often already suffered significant price declines. The open question is whether weakly performing stocks are simply overlooked because attention is focused on AI — and therefore underpriced — or whether they reflect genuine fundamental problems that macro data do not currently corroborate.
Potential diversifiers
Sectors that might help diversify risk include healthcare service providers, machine builders, consumer staples and household goods manufacturers. However, these are often labeled by investors as “boomer” industries and are less attractive to growth-focused buyers.
Conclusion
The recent rise in the manufacturing PMI and strong S&P 500 profits are substantially driven by AI-related investments and by a small number of large firms. That concentration, along with an AI-related valuation premium, raises market risk and complicates diversification. Analysts forecast more moderate but still positive earnings growth in coming years, suggesting investors should carefully weigh concentration risks and fundamental valuations.
