For many years, investors have grown accustomed to seeing a small group of mega-caps – first the GAFAMs, then the Magnificent 7 – drive the entire US market. This outperformance was justified by superior earnings momentum for these companies. However, this year could mark a turning point.

According to FactSet consensus, EPS growth for the Magnificent 7 is expected to reach 24.6% this year, compared to 15.9% for the other 493 companies in the S&P 500. Yet, this gap is essentially explained by Nvidia. If the AI chip champion is excluded, the growth of the other six companies is nearly twice as low.

 

Source: FactSet

It appears that the massive investments made by these companies are finally beginning to weigh on profits. It is also interesting to note that two of the largest spenders in AI, Amazon and Alphabet, are expected to see their growth slow significantly this year. 

Alphabet is expected to see its net income grow by 6% in 2026, following 32% in 2025. Source: MarketScreener.

All for the Chipmakers

While this relative loss of momentum for the Magnificent 7 could argue for a broadening of the equity rally, it must be emphasized that earnings growth is, in reality, highly concentrated.

Analysts expect 18% EPS growth for the S&P 500 in 2026. This figure may seem high, but it is boosted by two stocks: Micron and Nvidia. Etienne Monceau, data guru at MarketScreener, estimated, based on Bloomberg data, that 27% of the S&P 500's earnings growth in 2026 will come from these two companies.

In other words, if these two companies are excluded, S&P 500 earnings growth would drop to 13.1%. Nvidia is the largest market capitalization and accounts for around 7.5% of the index. Micron has a much smaller weight in the S&P 500 (about 0.8%), but its earnings are expected to surge by 671% between 2025 and 2026.

These two stocks are among the primary beneficiaries of the AI boom. Nvidia serves as the main supplier of chips for data centers, while Micron acts as a manufacturer of memory chips. The development of AI has created an explosion in demand in this segment, and shortages are benefiting the three companies that produce them (Micron, SK Hynix, and Samsung).

While the question of how the AI theme will diffuse across markets has been raised for several quarters, for now, the "picks and shovels" providers remain the big winners.