Markets are increasingly driven by a powerful combination of solid earnings and rapidly accelerating technological innovation. Despite persistent macroeconomic and geopolitical uncertainties, the current environment is characterized by the strength of the technology cycle, with artificial intelligence (AI) at its core.
THE ACCELERATION OF ARTIFICIAL INTELLIGENCE
In 2026, advances in artificial intelligence continued to accelerate. AI models have not only become smarter but also more useful. Following a pattern similar to previous computing eras, from mainframes to the cloud, as technology advances, AI adoption has extended far beyond the technology sector. From defense to healthcare, the use of artificial intelligence is spreading throughout the economy.
The growing diffusion of AI has led to an acceleration of revenues across the ecosystem. In the first quarter of 2026, leading AI model developers recorded nearly triple revenue growth, which helped increase cloud computing revenues of the three largest hyperscalers by 39.1% year-over-year, accelerating from 33.2% recorded in the fourth quarter of 2025. Supporting this growth, capital investments in AI infrastructure continued to rise, which in turn drove global semiconductor sector revenues to a record 78% year-over-year increase in the quarter.
IS IT REALLY A BUBBLE? WHAT THE DATA SHOWS
Although concerns have resurfaced that enthusiasm for artificial intelligence is fueling a market bubble, valuation multiples remain below previous peaks and earnings forecasts continue to grow. The U.S. technology sector currently trades at 23 times expected earnings, in line with its ten-year average and below the five-year average of 26 times. For comparison, at the 1972 peak, the Nifty-50 index traded at 42 times earnings, and in March 2000, the U.S. technology sector traded at 58.7 times, while the Nasdaq 100 traded at 75 times.
It is important to emphasize that valuations are supported by earnings growth. For example, in the first quarter of 2026, S&P index companies posted earnings growth of 28.6%, the highest increase in the last five years, largely driven by the technology sector, where earnings grew 54.8% year-over-year.
Although AI-related market returns have so far concentrated in the semiconductor sector, signs of expansion are emerging. After a long period of significant underperformance, the S&P Expanded Software index jumped 18.8% in May, with the sector continuing to trade at multiples below pre-pandemic levels. Moreover, despite concerns about potential AI-driven disruption, software as a service (SaaS) companies recorded the highest new revenue growth in more than five years during the first quarter of 2026.
CONCLUSIONS
Looking ahead, innovation remains the key driver of long-term growth, with artificial intelligence at the forefront. However, elevated expectations following a period of strong performance represent a potential short-term risk.
In this context, the focus remains on innovative, high-quality companies capable of translating technological leadership into sustained earnings growth, thus positioning themselves to seize the long-term opportunities of the artificial intelligence era.
