Capital Ideas^™ 
Investment insights from Capital Group

Beneath the surface of a narrow equity market, signs of wider participation have emerged. Although AI undoubtedly remains the dominant investment theme, history has shown that periods of narrow market leadership do not persist indefinitely. This shift leaves a compelling case for investors to consider a wider opportunity set.

A broadening earnings landscape is providing investors an opportunity to hunt beyond AI for attractive opportunities. Companies outside the Magnificent Seven are expected to post stronger profit growth in the latter part of 2026. Moreover, equal-weighted indexes and SMID-cap stocks have also gained traction. While Nvidia and other AI leaders remain important drivers of S&P 500 earnings, recent AI-equity volatility underscores the value of diversified exposure.

Earnings growth expected to widen beyond mega-cap tech

Source: FactSet. Earnings estimates based on analyst consensus forecasts. As of July 17, 2026. 

Meanwhile, the momentum factor in equities — where recent winners continue to lead the market — has been unusually strong, fueled largely by the dominance of semiconductors and advances in memory systems at the center of the AI build-out. Yet a telling dynamic has occurred: earnings from AI leaders continue to beat expectations, but the market's reaction has cooled, with these stocks no longer climbing as sharply on positive news. That pause has triggered some volatility around AI darlings. It raises a key consideration around how much future growth is already baked into the valuations of today's market leaders.

That said, large tech firms have shown little appetite for pulling back on AI spending, signaling continued confidence in the cycle's longevity. At the same time, increasingly broad earnings growth across the S&P 500 suggests it may be prudent to consider investments beyond the market's traditional AI leaders. Financials, for example, recently posted strong second quarter results, powered by robust trading activity and resilient consumers. Here are some areas our investment team is watching:

A pause in market leadership?

Source: Bloomberg Finance L.P., MSCI. Momentum index = MSCI USA Momentum Index price return (USD). Price returns exclude the reinvestment of dividends and capital distributions. As of July 30, 2026. 

1. Healthcare: Healthcare within the S&P 500 trades at a discount to the S&P 500 on a forward P/E basis. Current valuations reflect regulatory concerns that may already be priced in. At the same time, innovation across obesity treatments, oncology, rare diseases, managed care and senior housing continues to create opportunities that may not yet be fully reflected in market expectations.

2. Commodities: Loose fiscal and monetary policy, combined with a significant increase in AI-related capital expenditure, could contribute to more persistent inflationary pressures in the coming years. At the same time, years of underinvestment in areas such as energy and materials may constrain supply, potentially supporting commodity prices and creating greater interest in resource-oriented companies.

3. Industrials: Beneficiaries of the AI data center buildout have included companies such as Caterpillar, through construction and power solutions, and GE Vernova, via gas turbine supply. However, the opportunity set extends beyond data centers. Areas of interest include commercial aerospace, defense, electrification, infrastructure and companies positioned to benefit from domestic reshoring.

4. Consumer staples: This group can serve as a defensive buffer during bouts of AI-driven volatility, supported by generally stable cash flows and above-average dividend yields. Pricing power also helps the sector pass through cost pressures amid elevated inflation.

Bottom line

The key question for investors is not whether AI remains a powerful force, but whether current benchmark weights and valuations already reflect that potential. As a result, selectivity and fundamental research are increasingly important.

As Capital Group Chair and CIO Martin Romo recently highlighted: “This is not an argument against owning the companies driving the artificial intelligence era. Many are extraordinary businesses with durable prospects. The point is that at today’s weights and valuations, the benchmarks — and the passive strategies following them — increasingly assume one set of outcomes will dominate.”

In a healthy economic environment, other segments of the market could be rerated as earnings growth broadens, reinforcing the case for maintaining a balanced portfolio amid elevated concentration.