AI Buildout Is Stimulating The Economy - Yardeni QuickTakes

Nvidia's Q2 earnings report suggests that the AI spending boom is broadening. The company forecast 70% revenue growth next fiscal year, far above Wall Street's 45% expectation, and said growth would be even stronger if supply constraints were less severe. Significantly, non-hyperscaler revenue grew 138% y/y, outpacing hyperscaler revenue growth of 102% y/y, as demand broadened beyond mega-cap tech into AI-native startups, sovereign cloud builds, and traditional enterprise IT. Such a strong outlook from the company at the center of the AI ecosystem is a powerful vote of confidence in the AI spending boom. As CEO Jensen Huang put it, the "AI infrastructure buildout is at full steam." That suggests AI-related investment should remain a significant tailwind for both economic and earnings growth: (1) Earnings. AI spending is already showing up broadly in the economy and in earnings. S&P 500 Information Technology forward earnings is up 81.9% y/y, more than double the 36.0% gain for the S&P 500 as a whole. Other sectors tied to the AI buildout (including Industrials, Materials, and Communication Services) are showing robust growth too (chart). Industry analysts expect the strength to persist, with Information Technology's long-term earnings growth (LTEG) forecast at 41.7%, well ahead of the S&P 500's 25.0% (chart). The other AI-related sectors are also expected to show double-digit LTEG in the mid- to high teens.