Quick answer: Yes — the AI trade is still powering the stock market. But the companies driving it have changed, and that shift tells us something important about the potential durability of the rally.

What is a key data point illustrating the dynamics of the 2026 AI rally?
In the chart below, a basket of 2026’s strongest AI beneficiaries represented just 6% of the S&P 500 at the beginning of the year but has generated nearly half of the index’s year-to-date return.

The AI basket shown represents an illustrative analysis of 37 retrospectively selected S&P 500 companies associated with AI-related themes. Constituents were identified through an AI-assisted, qualitative, and iterative process that considered 2026 performance and perceived AI relevance. Portfolio weights were fixed as of October 31, 2025, using a Bloomberg portfolio. The analysis does not represent an investable index or a comprehensive AI universe. Different selections could produce materially different results. Past performance is not indicative of future returns.

Who were the early winners of the AI trade?
The earlier stages of the AI trade were dominated by companies with significant technological or competitive advantages:

• NVIDIA and Broadcom benefited from differentiated technology.
• Microsoft, Alphabet, Meta, and Amazon combined technological strength with an ability to invest at a scale few competitors could replicate.

Who is driving AI stock gains in 2026?
In 2026, some of the biggest beneficiaries have increasingly come from areas such as memory and storage.

Massive AI investment has created more demand for these components than the industry can currently satisfy. Shortages have pushed prices higher and driven substantial earnings growth.

Is a shortage-driven rally the same as a competitive-advantage-driven rally?
No. There’s an important difference between benefiting from a lasting competitive advantage and benefiting from a shortage.

Memory and storage have historically gone through cycles:

1. Shortages push prices and profits higher.
2. Higher profits encourage companies to add capacity.
3. Eventually, more supply can put pressure on both prices and profits.

Does this mean the AI investment cycle is ending?
No. None of this suggests that the AI investment cycle is ending. In fact, the extraordinary demand for these components demonstrates just how powerful the buildout remains.

So what’s actually changing?
The nature of the opportunity is changing. Some of today’s biggest beneficiaries are being driven more by shortages and pricing than by the lasting competitive advantages that characterized many of the earlier AI winners.

At the same time, strong earnings growth and continued enthusiasm around AI investment have pushed valuations higher, leaving less room for disappointment.

Bottom line: What does this mean for the rally going forward?
The AI trade is still working, supported by extraordinary levels of investment. But as the winners shift and valuations rise, the margin for error is narrowing. From here, continued investment and earnings growth will need to remain strong to support the rally.

Source: Bloomberg and Klingenstein Fields Advisors. Data through August 14.

This material is provided for informational and educational purposes only and reflects a general market analysis of AI-related trends within the S&P 500. Nothing herein should be construed as a recommendation or as investment advice of any kind. It is not provided in a fiduciary capacity and may not be relied upon for or in connection with the making of investment decisions. References to specific companies are illustrative only and do not constitute investment recommendations or indicate current or past holdings in client portfolios. Nothing herein constitutes or should be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or a recommendation to invest in any specific investment strategy. Investing involves risk, including the possible loss of principal.

The analysis includes an illustrative AI basket of 37 S&P 500 companies identified as participants in AI- and technology-related market trends. Constituents were identified through an AI-assisted and semi-manual process that incorporated qualitative and iterative analysis and the author’s judgment. Selection considered, among other factors, 2026 market performance and perceived relevance to AI-related themes. Past performance is not indicative of future returns.

The AI basket was constructed retrospectively for analytical purposes and was not established before the measurement period. It should not be viewed as a rules-based index, model portfolio, investment strategy, benchmark, or comprehensive universe of AI-related companies.

Different methodologies, constituent definitions, selection criteria, weighting approaches, or analytical tools could reasonably produce different results.