Profit Expansion is the Core Driver: Analyzing the Growth Engines of the US Stock Market in 2026

Image Source: pexels

Wall Street generally believes that the core driving force for the US stock market in 2026 will be strong corporate profit expansion, rather than mere valuation increases. The resonance between the AI investment cycle and potential policy easing provides powerful momentum for profit growth. Major financial institutions are optimistic about corporate profit prospects, and the latest real-time US stock news also reflects that the market focus is shifting toward corporate fundamentals.

Institutional Views: 2026 Stock Market Outlook Forecasts from JPMorgan and Morgan Stanley Many analysts believe that profit growth will be the key to driving index gains.

Key Points

• In 2026, the US stock market will primarily grow through companies earning more money, rather than stock prices rising higher.
• Artificial intelligence (AI) investment is the main reason companies are making more money, as it improves productivity and creates new markets.
• The US economic environment is favorable for companies to earn more, with easing inflation and potential interest rate cuts.
• Investors should focus on sectors like technology, healthcare, new energy, and industrials, which have significant growth potential.
• Investors need to monitor market changes, select companies that perform well in their industries, and diversify investments to reduce risks.

AI Investment Cycle Resonance: The Primary Engine for Profit Growth

Image Source: pexels

The strong momentum of the artificial intelligence (AI) investment cycle is the primary engine driving corporate profit growth in 2026. This is not short-term hype but a structural trend supported by massive capital expenditures. Tech giants are investing in AI infrastructure on an unprecedented scale, laying a solid foundation for future profit explosions.

Capital Expenditure Wave: Signal of AI Investment Sustainability Massive capital expenditure plans indicate that leading companies have firm confidence in the long-term returns of AI. The sustainability of this investment is key to supporting the entire profit cycle.

According to the latest data, capital investment in the AI field is staggering:

• Amazon, Alphabet, Meta, Microsoft, and Oracle plan to invest over $1 trillion in AI infrastructure from 2024 to 2026.
• Microsoft invested $30 billion in AI infrastructure in a single quarter.
• Meta and Google have also significantly increased their capital expenditure budgets, demonstrating their determination to accelerate layouts in the AI race.

This scale of investment not only drives demand for AI hardware but also heralds the start of a new technology-driven economic cycle.

AI-Driven Productivity Revolution

The core return on AI investment lies in its revolutionary enhancement of productivity. By deploying AI technology, companies can optimize operations, reduce costs, and improve efficiency, directly translating into stronger profitability. UCLA Anderson Forecast indicates that AI-related investments exceeded $405 billion in 2025 and are expected to continue growing in 2026, with this investment continuously driving economic growth.

Multiple industries have already achieved significant productivity improvements from AI applications:

• Technology and Financial Services: Through automated processes and data analysis, achieving faster decision-making and product development.
• Healthcare: Using AI for drug development, diagnostic assistance, and medical record management, significantly shortening R&D cycles and improving diagnostic efficiency.
• Manufacturing: Through AI-driven robotics and predictive maintenance, optimizing production lines and reducing downtime.

Morgan Stanley predicts that by 2026, AI-related hardware, software, and data center spending alone will contribute about 0.4 percentage points to US GDP growth. BlackRock’s view is more optimistic, believing that AI investment’s contribution to US economic growth in 2026 will reach three times the historical average. This indicates that AI is transforming from a technological concept into a core driver of macroeconomic growth.

Emerging Markets and Demand Created by AI

AI is not only transforming traditional industries but also creating entirely new markets and business models. Advances in generative AI have spurred demand for a large number of “AI-native” applications and services, opening new revenue sources for companies. By tracking the latest real-time US stock news, investors can keenly capture growth signals in these emerging fields.

This emerging demand is reflected at multiple levels:

• Underlying Technology Stack: Surging demand for AI-native vector databases (such as Pinecone) and unstructured data processing tools (such as Unstructured), becoming the foundation for companies to build AI applications.
• Industry-Specific Solutions: A large number of AI tools emerging in professional fields like law, finance, and healthcare, such as Harvey for legal research and Numeric for automated accounting.
• Content Creation: Video and image creation tools (such as Runway, Midjourney) for media and entertainment industries are reshaping content production methods.

The growth potential of these new markets is enormous. For example, the application of generative AI in healthcare alone is expected to reach a market size of $3.57 billion by 2026. These markets created from nothing provide broad profit space for innovative companies.

Profit Transmission in the AI Industry Chain

AI profit opportunities are transmitted along its value chain, but profit distribution is uneven. Understanding the profitability of different segments is crucial for investors to make precise allocations.

The profit allocation in the AI value chain shows clear layers:

1. Chip Manufacturers: As the cornerstone of AI computing power, companies like Nvidia enjoy extremely high gross margins of about 70% due to their technological barriers.
2. Cloud Service Providers: While benefiting from huge AI demand, massive investments in AI infrastructure pressure their profit margins, with gross margins estimated at 50-55%.
3. AI Model Developers: As the core connecting computing power and applications, their gross margins are about 50-60%.
4. Application Layer Companies: Profitability varies most severely here. Some fast-growing “supernova” companies have lower gross margins in early stages, while mature “shooting star” companies can reach 60%.

Deutsche Bank confirmed AI as the core growth engine in its 2026 outlook, but also reminds investors that the market will become more diversified. Beyond tech giants, industries like construction benefiting from data center builds, energy suppliers from rising power demand, and industrial companies in supply chains will all share AI dividends.

Deutsche Bank View: “AI is a game-changer and will remain a structural growth theme in 2026. But overinvestment and electricity shortages could dampen expectations. Successful long-term strategies are not about avoiding risks, but actively seeking, assessing, and consciously taking risks.”

Therefore, while AI is a clear main theme, investors need to be vigilant about overvalued concept stocks and potential slowdowns in capital expenditure growth, and view investment opportunities across the entire industry chain with a broader perspective.

Favorable Macro Environment: Policy Easing and Economic Recovery

In addition to AI’s structural drive, profit growth in the US stock market in 2026 will also benefit from a favorable macroeconomic environment. Expectations of policy easing and steady economic recovery together create conditions for improving corporate revenue and profit margins.

Inflation Easing and Interest Rate Decline Cycle

Easing inflation pressure paves the way for the Fed to start a rate-cutting cycle. Lower interest rates will directly reduce corporate financing costs and inject more liquidity into the market, which is particularly critical for capital-expenditure-dependent industries.

According to the Fed’s latest dot plot predictions, policy rates are expected to continue declining.

The market widely expects the Fed to start rate cuts before the end of 2025. A lower interest rate environment means corporate borrowers will enjoy lower interest expenses, helping reverse the declining trend in commercial and industrial loans. Even cash-rich tech giants may benefit from lower financing costs amid massive AI and data center investments.

Note: Rate cuts are not a panacea. For some highly leveraged, lower-credit-rated companies, improvements from rate reductions may be limited, and credit selection still needs to remain cautious.

Strong Employment Supporting Consumption Resilience

A robust job market is the cornerstone supporting US consumption resilience. Despite challenges, ongoing employment growth provides security for household income, thereby supporting consumption spending that dominates the economy. The US unemployment rate in 2026 is expected to remain in a relatively healthy range of 4.1% to 4.8%.

However, the consumption market shows clear “K-shaped” divergence. Latest real-time US stock news and consumer data show that while overall spending is strong, this growth increasingly relies on high-income households. Meanwhile, consumer confidence indices remain low, and delinquency rates on various loans are rising, signaling potential pressure on future consumption spending. Companies need to closely monitor these structural changes, as they directly affect revenue prospects in different consumption areas.

Global Supply Chain Restructuring: Nearshoring and Friendshoring Trends

Therationing trends in global supply chains bring new growth opportunities to specific US industries. Companies are actively shifting production and procurement to North America or politically allied countries, known as “nearshoring” and “friendshoring,” to enhance supply chain stability.

This trend is particularly boosting US manufacturing:

• Investment Inflows: In just seven months after the Inflation Reduction Act, the North American EV supply chain attracted $52 billion in investments.
• Job Reshoring: Since 2010, US manufacturing has announced over 2 million job creations. In 2024, jobs created by domestic company reshoring reached a record high.
• Technology Applications: Technologies like additive manufacturing (3D printing) are becoming key to nearshoring strategies, enabling flexible local production of parts, reducing transportation costs and tariffs.

These investments and job growth directly translate into revenue and profits for related companies, providing a solid foundation for profit expansion in industrials and transportation equipment sectors in 2026.

Focusing on High-Growth Tracks: Capturing Industry Profit Explosion Points

Image Source: unsplash

The macro environment and AI wave together shape the 2026 investment landscape. Investors need to identify industries that can convert macro benefits and technological changes into actual profits. In-depth analysis of specific tracks is key to capturing future profit explosion points.

Tech Stocks: AI Dividends from Semiconductors to Software

The technology sector remains the core position for profit growth. In 2026, tech fields including cloud computing and semiconductors are expected to achieve double-digit revenue growth. Although growth may slow from previous peaks, the sustainability of AI investment provides a solid growth base.

Profit opportunities are mainly concentrated in key nodes of the AI industry chain:

• Semiconductor Giants: As the cornerstone of AI computing power, a few companies dominate the market.
  • NVIDIA: The company has transformed from a chip supplier to an infrastructure partner. Its GPUs dominate data centers and are key to training large language models, driving massive profit growth in recent years.
  • ASML: The company holds unique extreme ultraviolet lithography (EUV) technology. This is essential for producing advanced chips needed for AI and is indispensable for top foundries like TSMC and Samsung.
  • Taiwan Semiconductor Manufacturing Company (TSMC): As the world’s leading chip foundry, it provides manufacturing services for tech giants like Nvidia and Apple. High-performance computing has become an increasingly important revenue source.
• Enterprise Software Rising Stars: AI is not only driving hardware but also reshaping the software industry. In enterprise software, some companies show outstanding profit growth. For example, Palantir is expected to continue strong profit growth in 2026, potentially exceeding the market’s general expectation of 37%, demonstrating the huge commercial potential of the AI application layer.

Investment Insights The investment logic for tech stocks is shifting from “broad rise” to “differentiation.” Investors should focus on leaders with technological moats that occupy irreplaceable positions in the AI value chain.

Healthcare: Driven by Technological Breakthroughs and Demographics

The healthcare industry is entering a golden era driven by both technological breakthroughs and demographic changes. Innovative therapies, AI-assisted diagnostics, and growing medical demand together drive steady profit expansion in the sector.

Market size growth forecasts confirm this trend. Key subsectors like biotechnology and medical devices are expected to continue expanding.

The most powerful driver behind this growth comes from demographic changes:

• Population Aging: By 2030, one-fifth of Americans are expected to be over 65. The elderly are primary users of medical services, with medical spending far exceeding younger groups. For example, per capita medical spending for those over 85 is 8.5 times that of children.
• Chronic Disease Management Demand: Longer lifespans often come with multiple chronic conditions, intensifying demand for long-term medical services and products.
• Increased Imaging Diagnostics Demand: The elderly more frequently use X-rays, CT scans, etc., for diagnosing and managing common conditions like arthritis and cardiovascular diseases. Those over 65 already account for about 30% of all imaging exams.
• New Demands from Younger Generations: Millennials and Gen Z have higher expectations for digital health tools and convenient services, pushing healthcare systems toward more flexible and interconnected directions.

These irreversible demographic trends create sustained and stable profit growth space for pharmaceutical, medical device, and healthcare service companies in 2026 and beyond.

New Energy and Industrials: Profit Inflection Point Under Policy Support

Against the backdrop of policy support and global supply chain restructuring, new energy and industrial sectors are approaching profit inflection points. Government incentives and large-scale infrastructure investments create clear growth paths for related companies.

Policies like the Inflation Reduction Act provide strong tax credits and funding support for various clean energy fields, directly enhancing project profitability.

Meanwhile, the industrial sector is significantly benefiting from “nearshoring” and infrastructure construction. The following subsectors are expected to achieve the strongest profit growth:

• Building Materials and Distribution: Benefiting from new factory construction and infrastructure projects.
• Electrical Equipment and Automation: Benefiting from demand for grid upgrades, factory automation, and climate control systems.
• Aerospace and Defense: Geopolitical tensions and technological upgrades drive sustained growth in this field.

For investors, closely monitoring policy developments and project implementation progress is key to seizing profit opportunities in these two sectors.

Tracking Real-Time US Stock News: Discovering Sector Rotation Opportunities

The market is not monolithic; capital always flows between different sectors, forming “sector rotation” phenomena. Market rhythm changes may accelerate in 2026, requiring investors to use tools and information to keenly capture these shifts.

Global events are important drivers of sector rotation. For example, the COVID-19 pandemic exposed supply chain vulnerabilities, promoting manufacturing reshoring; geopolitical risks prompt institutional investors to diversify from overheated tech stocks to other areas. Goldman Sachs reports show institutional investors once reduced tech exposure to the lowest in a decade.

To effectively track these dynamics, investors need reliable tools to process massive data.

How to Track Market Dynamics? Modern fintech applications, such as Biyapay, provide convenient solutions for investors. Such platforms typically integrate comprehensive data, customizable charts, and analysis tools, helping users simplify the analysis process. By tracking the latest real-time US stock news and fund flow data, they can timely discover potential sector rotation opportunities. For example, E*TRADE’s monthly sector rotation research, based on real trading behavior of its clients, provides valuable references for market sentiment changes.

By combining macro event analysis with real-time data tracking, investors can more proactively adjust portfolios, seizing the main profit growth lines in a changing market.

The US stock market in 2026 will be a year where “profits are king.” Strong corporate profit expansion, rather than valuation increases, becomes the core driver pushing the market into a new “rolling recovery” phase.

However, opportunities and risks coexist. Investors still need to be vigilant about AI valuation bubbles; institutions like Stifel have pointed out that capital expenditure booms may only be temporary. At the same time, fiscal policy uncertainty from the US election also increases market volatility.

Investment Strategy Suggestions It is recommended that investors adopt a “bottom-up” stock selection strategy. Focus on industry leaders that stand out in the “rolling recovery,” for example:

• Financials
• Industrials
• Healthcare
• Software

Through diversified allocation and dynamic adjustments, one can grasp the main profit lines in a changing market.

FAQ

Why is profit growth more important than valuation in 2026?

Market analysis shows that in an environment where interest rates may decline, actual corporate profit growth becomes the core support for stock prices. The momentum relying solely on valuation expansion weakens, and companies with sustained profitability will be more favored by investors, becoming a solid foundation for market rises.

How can investors position in AI trends beyond tech giants?

Investors can focus on the entire AI industry chain. This includes semiconductor companies providing computing infrastructure, industrial and energy companies benefiting from data center construction, and software and service providers applying AI technology to specific industries. Diversified allocation helps spread risks.

What specific impact do Fed rate cuts have on corporate profits?

Interest rate declines can directly lower corporate financing costs, especially benefiting industries requiring large capital expenditures. This helps improve corporate profit margins and inject more liquidity into the market, stimulating investment and economic activity, creating favorable conditions for corporate revenue growth.

What are the main risks facing the US stock market in 2026?

Main risks include overvaluation of some AI concept stocks, potential slowdown in capital expenditure growth, and policy uncertainty from the US election. Additionally, fluctuations in inflation data and changes in consumer confidence may cause short-term market impacts.