In this article, we’ll explore…
- Why the concentration of market leadership may be approaching an inflection point.
- How AI’s evolution from infrastructure buildout to enterprise adoption could expand the opportunity set for investors.
- The role valuation, market concentration, and historical cycles may play in a potential leadership shift.
- Why small and mid-cap companies could be well positioned to benefit from the next phase of AI-driven productivity gains.
buildout
AI Amplified the Concentration
The concentration that defined the S&P 500 heading into 2026 did not begin with AI. It was years in the making. Passive flows mechanically bid up the largest names. Platform economics and network effects let a handful of businesses compound earnings faster than the rest of the index could. And through the rate shock, regional bank stress, and recession fears of 2022–2024, investors treated the largest balance sheets as the safest place to hide.
Then AI piled on. The infrastructure buildout gave the market a credible, multi-year capex-to-earnings story, and that story ran almost entirely through companies that were already the largest names in the index. Some technology cycles create new winners. This one, in its first phase, funneled capital into the existing hyperscalers and their supply chain. It gave the market a fresh reason to keep doing exactly what it had been doing.
By late 2025, the ten largest stocks in the S&P 500 accounted for approximately 39% of the index — more than double their share from a decade prior — with the group trading at roughly 30 times forward earnings, well above the market’s long-run average of approximately 17x. If you owned a cap-weighted index fund, you were making a concentrated bet on a handful of names whether you intended to or not.
The buildout is not over. Semiconductors, power, data centers, and the physical layer of the AI stack will keep pulling in capital for some time. What is changing is that a second chapter is starting to get priced in alongside it: the companies that do not build AI but use it — manufacturers, healthcare providers, financials, and others across the economy that stand to capture the productivity gains.
handoff
When AI Moves From Builders to Users, the Opportunity Set Expands
The infrastructure phase was dominated by the few companies with balance sheets big enough to absorb that level of spending. The productivity phase that follows is structurally different.
In this phase, AI is a tool applied across the broader economy rather than a product sold by a few companies. Manufacturers use it to tighten supply chains and reduce downtime. Healthcare companies use it to speed diagnostics and drug discovery. Industrials use it to cut labor friction and lift margins. Many of the businesses that stand to benefit are mid-sized and domestically oriented — precisely the kind of names the mega-cap concentration cycle has left behind.
In short, alongside the AI infrastructure trade there is now an AI productivity trade, and its beneficiaries are spread across the economy rather than clustered at the top of the cap spectrum. We are early in this phase, and it is running alongside the buildout rather than after it. Enterprise adoption surveys, rising AI usage at non-tech firms, and margin commentary on recent earnings calls all point in the same direction: the gains are starting to show up, and the runway ahead is long.
REVERSION
AI and the Great Reversion
The conditions that historically precede small and mid-cap outperformance are familiar: stretched relative valuations, extreme index concentration, and a macro backdrop that favors domestically-oriented, cyclical businesses. We have written about these dynamics for several years. What has changed is not the setup. It is that a plausible trigger has arrived, and that trigger is AI itself.
The first wave of AI spending was, by necessity, captured by a narrow set of mega-cap beneficiaries: semiconductor designers/fabricators, hyperscale cloud providers, and the networking and power suppliers in their wake. That concentration was rational. Building the infrastructure layer of a new platform requires capex and distribution scale that only the largest companies have. But buildout is not the same as value capture. The history of general-purpose technologies — railroads, electrification, the internet — is a history of two different groups: the companies that build the platform and the companies that use it, with the latter usually capturing the durable economics. We expect AI to follow the same pattern. The deployers are disproportionately mid-cap industrials, specialty manufacturers, and operationally intensive businesses whose margins have the most to gain from putting automation and intelligence inside their own workflows.
Buildout concentrates capital. Deployment distributes returns. The question is timing. Three things shape our read: capex is now growing much faster than attributable AI revenue, enterprise adoption is broadening beyond early technology buyers, and model inference pricing is falling fast as that layer commoditizes. None of these on its own is a single-stock signal, but together they suggest the transition is underway, not hypothetical.
CooksonPeirce has run a momentum-driven, evidence-based, and unconstrained approach to equity management since 1984. That flexibility is how we have historically rotated into new leadership regimes before they become consensus. The Great Reversion thesis is finding its footing in real data, and we are positioning accordingly.
IMPORTANT DisclosureS:
This material is compiled for informational purposes only and is intended for Financial Advisor use only. It is not intended for distribution to the public or to individual retail investors.
The views expressed reflect the opinions of CooksonPeirce as of the date of publication and are subject to change without notice. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal. References to historical market data are for illustrative purposes only.
This material does not constitute investment advice, a solicitation, or an offer to buy or sell any security. CooksonPeirce is a registered investment advisor. Please refer to our Form ADV for important information about our services, fees, and conflicts of interest.
“We believe,” “we strive,” and similar hedged language throughout this document reflect opinions and forward-looking perspectives, not guarantees of future outcomes.
about cooksonpeirce
CooksonPeirce is a Pittsburgh-based, 100% employee-owned registered investment adviser founded in 1984. We manage the All Cap Equity strategy for individual investors and financial advisors seeking a disciplined, momentum-driven approach to active equity management. Assets under management exceed $2.5 billion.
Materials discussed are meant for informational purposes only and are not to be construed as investment, tax, or legal advice. Past performance is not indicative of future results. The views expressed represent the opinions of CooksonPeirce and are subject to change. Please refer to CooksonPeirce’s Form ADV for full disclosures.
