But beneath the surface of this AI fueled tech rally, a completely different story is unfolding. The market is deeply bifurcated, and for the discerning investor, this dynamic is creating some of the most compelling risk/reward setups we’ve seen in years.

Here is the full breakdown on why I am fundamentally bullish right now.

Earnings Growth is Eclipsing Historical Averages

While valuation multiples often capture the headlines, the ultimate driver of equity prices over the long term is underlying earnings. Right now, the profit engine of the market is operating at a level well above its historical baseline.

Subscribe now

Current forecasts for 2026 full-year S&P 500 earnings growth are sitting squarely in the double-digits, with some projections reaching as high as 24%. To put that into

perspective, this absolutely dwarfs the market’s long-term historical earnings growth average of roughly 8% to 9%. Furthermore, corporate profit margins are remaining incredibly resilient, currently hovering near their highest levels since tracking began in 2008. This robust, broad-based earnings acceleration provides structural support for the wider market. It means that, for the most part, investors are paying for actual, accelerating cash flows rather than just speculative hype.

Crucially, the capital expenditure that is turbocharging much of this growth is not a short-term anomaly. Recent reports from institutions like Goldman Sachs and Barclays project that the massive AI infrastructure spend by hyperscalers (like Meta, Microsoft, Amazon, and Alphabet) is expected to persist, with capital expenditure peaking around 2028. This sustained, multi-trillion-dollar deployment of capital ensures a durable, multi-year pipeline of revenue—not just for the obvious semiconductor names, but for the vast ecosystem of physical data center infrastructure, networking, and enterprise software companies required to support and govern it.

The “Nosebleeds” are Masking a Reasonable Broader Market

It is true that the top tier of the S&P 500 is historically expensive. The index’s forward P/E is hovering around 23.6x, largely dragged upward by the massive valuations of the Magnificent 7 and semiconductor hardware companies pricing in perpetual, bottlenecked demand.

However, if you strip out the AI hardware and space infrastructure momentum trades, the multiples drop dramatically. Look at the S&P 500 Equal Weight Index (RSP). Not only does it offer a much more reasonable valuation by treating every company equally, but it is actually outperforming the traditional cap-weighted S&P 500 year-to-date in 2026. As of late June, the equal-weight index is up roughly 11% YTD, compared to just 7.4% for the cap-weighted index.

The “Impressive 493” (the rest of the S&P 500), along with mid-cap and small-cap indices like the Russell 2000, are quietly carrying the broader market. Earnings growth for these companies has been accelerating. You don’t have to pay 50x forward earnings to find growth; the broader market offers compounding value and is already proving its strength in the data.

Big Tech is Secretly on Sale

When financial media discusses “Big Tech valuations,” they tend to lump the entire Magnificent 7 into one expensive basket. It is easy to look at the towering hardware and semiconductor multiples and assume the rest of the tech heavyweights are equally stretched. But the data tells a completely different story.

If you look past the immediate AI infrastructure build-out, some of the most dominant, cash-printing consumer and enterprise tech monopolies in the world are trading at significant discounts to their own historical averages.

• Meta (META): Despite staggering revenue growth and lean operating margins, Meta is currently trading at a forward P/E of roughly 17.8x. For context, Meta’s historical average often sits in the mid-to-high 20s, and it exited 2023 trading above 31x.

  

• Microsoft (MSFT): The undisputed king of enterprise software is trading at a forward P/E of just 21.0x. Over the last five years, Microsoft’s average P/E has hovered around 31.8x. You are getting the world’s most resilient software ecosystem at a ~30% discount to its historical norm.

  

• Netflix (NFLX): The winner of the streaming wars is currently priced at a forward multiple of roughly 22.9x, a massive contraction from its 12-month average of 41.7x and its 2023 exit multiple of 48.5x.

• Amazon (AMZN): Amazon is currently trading at a forward P/E of 27.4x. While higher than the others on an absolute basis, it is historically cheap for Amazon, which averaged a P/E of over 47x in 2024 and nearly 80x in 2023.

The market has become so hyper-focused on the companies building the physical chips and data centers that it has completely derated the companies actually monetizing the software, e-commerce, and digital ad spaces. We are being offered the rare opportunity to buy into wide-moat, blue-chip tech monopolies at or near value-stock multiples.

The Generational Mispricing of Software

Perhaps the most exciting opportunity right now is in software and enterprise tech. In early 2026, concerns that “agentic AI” would replace human workflows—and therefore reduce software seat licenses—triggered a broad sell-off in enterprise software.

The market has applied this fear uniformly, compressing software valuations to levels we haven’t seen in years. Median EV/EBITDA multiples for B2B SaaS companies have round-tripped entirely back to pre-pandemic levels, and in some cases much lower. Top-tier infrastructure companies are currently trading at their lowest multiples in their public market histories.

The market is potentially making a category error. Every AI agent a corporation deploys still needs to be governed, audited, and tracked across systems. The infrastructure and enterprise software that manage these workflows aren’t obsolete—they are foundational. Buying mission-critical software companies at these compressed multiples is the exact kind of high-conviction, contrarian bet that drives long-term outperformance.

Case Studies in Dislocation

To understand just how irrational this software sell-off has become, we don’t need to look at speculative, unprofitable micro-caps. We can look at the absolute titans of industry. The market is currently treating structural compounders as if their business models are broken, creating a massive divergence between underlying fundamentals and equity prices.

Three premier examples perfectly illustrate this dislocation:

1. Intuit Inc. (INTU)

Intuit holds an ironclad monopoly on consumer tax preparation and small business accounting. If you look at the chart below the divergence is striking. Intuit’s net income has steadily marched upward, hitting peak levels. Yet, the stock price has suffered a massive, vertical cliff-dive. The business is generating more net income than at any other point in its history, but the equity is being discarded as if small businesses and individuals are going to stop filing taxes or managing their customers books because of AI.

2. SAP SE (SAP)

As the backbone of global enterprise resource planning (ERP), SAP is notoriously difficult for corporations to rip out and replace. The image below reveals a beautiful fundamental story: net income bars are surging upward toward historical highs as they successfully transition clients to the cloud. Despite this robust fundamental acceleration, the stock price line has aggressively decoupled, plunging downward from its recent peaks. The operational engine is firing on all cylinders, but market sentiment has completely detached from reality.

3. ServiceNow, Inc. (NOW)

ServiceNow is the gold standard for enterprise digital workflows, sitting right at the center of corporate IT operations. The company’s free cash flow generation is an absolute powerhouse, compounding relentlessly to new all-time highs above $4.5 billion. Yet, looking at the price line, the stock has completely cratered. ServiceNow is literally printing more cash than ever before, but its valuation multiple has been compressed by macro panic.

This is what a classic category error looks like. When the lines on a chart representing free cash flow and net income keep climbing to the top right, while the line representing stock price falls off a cliff, long-term investors should pay close attention. This isn’t structural decay—it’s institutional liquidation throwing the baby out with the bathwater.

The Fear & Greed Index is at 25 (Extreme Fear)

Despite the broader indices sitting near all-time highs, the CNN Fear & Greed Index is currently registering at 25—signaling Extreme Fear.

It seems entirely counterintuitive that the stock market could be operating at all-time highs while investors remain extremely fearful. However, this dynamic is a classic contrarian indicator. We have seen this exact scenario play out before—most recently in late 2025, when the S&P 500 experienced a quick 3% pullback from its all-time highs. That minor dip was enough to send the Fear & Greed Index plummeting straight into “Extreme Fear” territory, despite the market having just logged massive gains over the prior months.

Historically, “Extreme Fear” readings have frequently coincided with significant market bottoms, providing investors with remarkable contrarian buying opportunities. During periods of extreme fear, collective market panic often drives asset prices well below their true intrinsic value. For instance, during the COVID-19 crash in March 2020, the Fear & Greed Index plunged down to a reading of 2. Investors who bought into that extreme fear were heavily rewarded, as the S&P 500 subsequently soared over 100% within the next 18 months.

While elevated valuation metrics like the Shiller CAPE ratio—which has hovered around 40 recently—might understandably cause some investor apprehension, capitulating to fear is historically a wealth destroyer. The average investor often buys high during periods of euphoria and sells low during cycles of panic.

When fear reaches these extreme levels during an ongoing bull market, it shows that the market is successfully climbing a massive “wall of worry.” A price breakout that is supported by fearful sentiment readings can actually serve as a powerful buy signal. Ultimately, even when the market is at all-time highs, the historical probability points to the index moving higher over the long term, making extreme fear an opportunistic window to accumulate shares rather than sell them.

The Devil’s Advocate: What Could Go Wrong?

No high-conviction thesis is complete without an honest assessment of the risks. While the fundamental data strongly supports a bullish stance, there are distinct threats that could disrupt this trajectory. If you are going to be bullish, these are the fault lines you must monitor:

1. The AI “ROI Gap” and the Capex-Monetization Debate The absolute biggest risk to the market right now is whether the massive spending on AI infrastructure can actually be monetized fast enough. Hyperscalers (like Amazon, Meta, Alphabet, and Microsoft) are widely forecast to spend over $600 billion on capital expenditures in 2026 alone, with the vast majority tied to AI datacenters and equipment.

The market has largely priced in the assumption that this investment will eventually translate to revenue. However, there is a growing “capex-monetization debate” on Wall Street. If enterprise adoption of agentic AI is slower than expected, or if businesses fail to see a tangible return on investment from deploying these models, hyperscalers may face intense shareholder pressure to drastically dial back their capital expenditure. A sudden halt in infrastructure spending would pull the rug out from under the semiconductor and hardware markets.

2. The Debt Burden of the AI Buildout Historically, Big Tech funded its growth through massive internal free cash flow. That is changing. The sheer scale of the AI buildout means capital expenditures are now frequently outpacing organic cash generation, forcing hyperscalers to increasingly tap the debt markets to bridge the gap.

If interest rates remain structurally higher for longer, the cost of servicing this surging tech sector debt will eat into profitability. If the AI hype deflates even slightly, this leverage could rapidly transform from a growth accelerant into a major vulnerability.

3. Margin Compression and Earnings Concentration While current S&P 500 earnings are tracking at spectacular double-digit growth rates, those gains are heavily concentrated. AI-infrastructure beneficiaries are expected to account for roughly half of the total earnings growth for the index in 2026. Furthermore, corporate profit margins are sitting near cycle highs. This creates a precarious setup: because margins are already stretched to near-record levels, there is very little cushion left if input costs (like energy and semiconductor chips) reaccelerate or if consumer spending softens.

Conclusion: Fortune Favors the Discerning

The market right now is a test of an investor’s psychological fortitude and analytical discipline. It is incredibly easy to look at the surface-level indices, get dizzy from the valuation of a few semiconductor giants, and run for the hills. But doing so means blinding yourself to one of the most asymmetric stock-picking environments we have seen in a decade.

We are witnessing a profound structural disconnect. Corporate earnings growth is doubling historical averages, profit margins are sitting near record highs, and the world’s most powerful hyperscalers are in the midst of a multi-trillion-dollar spending boom. Yet, market sentiment is flashing “Extreme Fear,” and institutional liquidation has pushed elite, cash-printing tech monopolies and enterprise software compounders down to value-stock multiples.

This is exactly how alpha is generated. You do not beat the market by buying what is popular at the exact moment it is popular. You beat it by recognizing category errors, stepping in when institutional panic creates massive fundamental dislocations, and calmly buying pristine balance sheets while the crowd is paralyzed by fear.

The market engine is intact, the broader valuations are reasonable, and the cash flows are real. The wall of worry is high—and that is precisely why it’s time to buy.

Leave a comment

Share