Why the AI Trade is Moving Up the Stack

The U.S. equity market demonstrates remarkable resilience despite rising interest rates, primarily driven by robust earnings from large-cap technology stocks and sustained artificial intelligence enthusiasm. While market breadth has narrowed to levels not seen since the dot-com bubble, the investment narrative is shifting from initial infrastructure CapEx toward the "inference economy," focusing on software, cybersecurity, and personal AI agents. Ben Snider, Chief U.S. Equity Strategist, and Pete Callahan, TMT Specialist, anticipate a potential "catch-up" trade for beaten-down cyclical sectors like consumer experience stocks if rate pressures ease. As the market looks toward 2027 and 2028, investors are increasingly prioritizing return on invested capital for hyperscalers and tangible cost savings from AI integration. Despite the upcoming midterms, historical patterns suggest a year-end market rally as election-related risk premiums dissipate amid steady policy expectations and light investor positioning.