Stock Market Growth Outlook: Why Shares Could Rise Even as AI Spending Slows

Big tech’s heavy investments in artificial intelligence fueled record-breaking stock gains last year, but analysts suggest another surge in spending may not be necessary for continued growth in 2026.

U.S. hyperscalers Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), Meta (META), and Oracle (ORCL) are projected to invest over $500 billion in infrastructure this year, much of it tied to AI. That level of capital expenditure as a share of GDP would mirror peaks seen during past tech cycles, including the personal computing boom of the 1980s, the Dotcom surge of the 1990s, and the post-pandemic “Zoom boom,” according to Dhaval Joshi, chief strategist at BCA Research.

Historically, tech stocks began to underperform about a year before those cycles peaked. Joshi cautions that “AI-plays in the stock market are in imminent danger” if history repeats. However, he argues this cycle resembles the “Zoom boom” more than the Dotcom Bubble, largely due to today’s interest rate environment.

Joshi adds that even if the AI capex boom slows, an ultra-accommodative Federal Reserve could extend the stock market rally.

Why This Matters

Artificial intelligence investment has been a major driver of stock market gains in recent years, raising concerns about how equities will perform if that spending slows.

Such worries contributed to the volatility and hesitation seen in tech stocks during the final months of 2025.

Joshi explains that the tech sector avoided a slump in 2021 because real bond yields returns adjusted for inflation continued to decline even as inflation rose. Tech stocks lost market leadership that year but didn’t fall sharply until the Federal Reserve’s rate hikes in 2022 pushed real yields higher.

Today, the Fed is signaling more rate cuts rather than hikes. Joshi argues that if inflation holds near 3% while rates are reduced, real yields will decline again, supporting stock valuations and extending the rally.

Still, there’s no guarantee of an “ultra-accommodative” Fed in 2026. Persistent inflation, a stabilizing labor market, or stronger economic growth could prevent policymakers from following President Donald Trump’s push for aggressive cuts. Following a mixed jobs report, the odds of no rate cuts in the first half of the year climbed to a one-month high.

Wall Street analysts remain broadly optimistic about the stock market’s trajectory, with expectations that healthy earnings growth will continue to drive solid returns. Yet, the durability of the AI-driven rally which faltered late last year remains a key concern. Tech mega caps now make up an unusually large portion of the S&P 500, leaving the index more exposed to potential weakness in the sector.

At the same time, lower interest rates could boost market liquidity, while tax cuts from last year’s One Bi Beautiful Bill may stimulate economic growth. Together, these factors could help counterbalance the drag from slower-moving tech stocks.

Wall Street remains optimistic about earnings growth driving solid returns, but the sustainability of the AI rally is a major concern. Tech mega caps now dominate the S&P 500, leaving the index vulnerable if the sector stumbles. Lower interest rates and tax cuts from last year’s One Bi Beautiful Bill could boost liquidity and economic growth, helping offset weakness in tech stocks and supporting broader market resilience.