VettaFi’s Murphy: AI Capex Narrows S&P Earnings Gap

VettaFi Director of Research Cinthia Murphy, in a recent interview, said rising capital expenditures on artificial intelligence infrastructure are lifting the broader market and narrowing the earnings gap between the largest tech names and other S&P 500 firms. FactSet data show about 88% of S&P 500 companies have beaten analyst expectations so far in the second quarter.

Murphy noted that corporate spending on servers, chips and memory is extending growth beyond software companies to hardware and industrial firms that build data-center systems. She pointed to continued investor flows into semiconductor and memory stocks and cited capacity constraints as a sustaining investment driver. ‘I’m really amazed by the persistence of the semiconductor and memory play,’ she said. ‘The concept of the bottleneck remains a big strong driver of asset flows and performance.’

Industrial companies that supply construction, power and equipment for data-center projects have seen rising profitability and higher valuations, Murphy said. She referenced the State Street industrial sector ETF XLI and observed that its valuation measures are high relative to the S&P 500 and comparable with valuations in the technology sector.

On consumer trends, Murphy contrasted low survey-based sentiment with steady consumer spending. She identified the Amplify Online Retail ETF (IBUY) as a gauge of online retail activity and the VictoryShares Free Cash Flow ETF (VFLO) as an indicator of companies with strong cash generation.

Turning to interest rates and fixed income, Murphy cited recent Federal Reserve testimony stressing price stability and noted market expectations for higher rates in coming months. She reported that more than 35% of year-to-date fund flows have moved into bond ETFs, with allocations concentrated at the very short end and in longer-duration or alternative fixed-income products. She described that pattern as a barbell approach and said investors are splitting allocations between cash-like short-duration funds and other fixed-income strategies.

Murphy recommended watching companies’ forward guidance through the rest of the second-quarter reporting season for signs of how capital spending and rate expectations might shift sector flows. She said steady rate forecasts could lead investors to increase allocations to more defensive and value-oriented stocks as growth spreads beyond the largest technology firms.