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AI Investment Cycle: Navigating Dependency Risk for Clients

June 30, 2026

AI spending is serving as a macro-level stimulus supporting revenue growth, driving demand, and boosting industrial and infrastructure activity. But there are risks.

Chart showing 2026 earnings growth of of various sectors. Information technology is more than half of the total

Key takeaways:

  • As this chart illustrates, U.S. earnings growth has been narrowly concentrated so far in 2026. Just a small group of companies tied to AI—particularly semiconductors and digital platforms—have recently been the primary drivers of U.S. earnings.
  • With stocks increasingly reliant on the AI cycle, don’t forget that if financing conditions tighten or AI-related capital spending slows, earnings expectations may downshift. If this becomes tomorrow’s reality, are your clients prepared for the potential fallout?
  • If not, consider talking with them about Fundamental Index® strategies. These strategies weight firms based on measures like cash flow, dividends, and sales, breaking the link between stock price and index weight. And they can complement market cap-weighted index strategies, potentially enhancing portfolio diversification.
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Cash flow for a company can be measured by its statement of cash flows, which reflects the firm’s financial activity over time and shows where its cash comes from and how the cash is used to pay for operations and/or invested.

Market capitalization-weighted index strategy (market cap-weighted index strategy)—Many of the broadly referenced market indexes today are “cap-weighted,” with the widely followed S&P 500® index serving as a prime example. In a cap-weighted index—and therefore in a cap-weighted index strategy—large price moves in the largest components can have a dramatic effect on the value of the index. This weighting toward the larger companies is sometimes considered to generate a distorted view of the market.

Sources: Charles Schwab, S&P Global, and FactSet data as of 05/27/26. Sectors are determined using the Global Industry Classification Standard (GICS®). Global Industry Classification Standard (GICS®) was developed by and is the exclusive property of MSCI Inc. (MSCI) and Standard & Poor's (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co, Inc. Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For additional information about the indices and terms shown, please visit www.schwabassetmanagement.com/resources/glossary.

Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. All names and market data shown are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.

Extreme concentration can make markets more vulnerable. When a large share of earnings growth comes from a limited group of companies, market performance and valuations become more dependent on those firms continuing to meet high expectations. Concentration Risk. To the extent that index composition, earnings growth, or investor positioning becomes concentrated in a particular region, sector, group of industries, or individual securities, the broader index or asset class may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

Past performance is no guarantee of future results.

Investing involves risk, including loss of principal. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.​

There can be no assurance that the Fundamental Index methodologies will achieve their desired outcomes. Each investing strategy brings with it its own set of unique risks and benefits.

Diversification does not ensure a profit and does not protect against losses in declining markets.

The Schwab Center for Financial Research® is a division of Charles Schwab & Co., Inc. Articles attributed to SCFR are the opinions of employees of Charles Schwab & Co., Inc., Member SIPC and may not reflect the views of Schwab Asset Management.

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