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AI-linked stocks can rise even as many other shares fall because a market index is not the same thing as the typical stock, and companies do not share one earnings outlook. A few very large companies can lift a capitalization-weighted index while weaker performance is widespread elsewhere. Their gains are not guaranteed, however, and AI-related shares do not all move together.
How can the market rise when most stocks are down?
A capitalization-weighted index gives more influence to companies with larger total market values. If a handful of those companies gain enough, their performance can offset losses across many smaller constituents. The headline index may therefore rise even when the median constituent falls.
That is a difference in what the measures describe, not a contradiction. An index return describes the change in the value of its weighted basket; market breadth describes how many stocks advanced or declined. An equal-weighted version of an index gives its constituents more similar influence, so comparing it with the capitalization-weighted version can help show whether gains are broadly shared or concentrated.
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Why might AI-linked companies hold up better?
Earnings and expectations differ by company
A stock price reflects expectations about future results as well as earnings already reported. If investors expect a company to benefit from AI demand, or its current earnings are strong, its shares may resist weakness affecting businesses with different customers, costs, or prospects. But “AI-linked” covers companies with different businesses and financial results; it does not mean every share in the group rises together.
In a November 2025 discussion, Federal Reserve Vice Chair Philip Jefferson described many well-known AI-linked firms as having established and growing earnings, contrasting them with many dot-com firms. That was a dated characterization, not a guarantee about those companies today or proof that their future spending will pay off. Jefferson’s remarks on financial stability also addressed uncertainty around expectations and investment.
AI infrastructure spending can support investment activity
Companies building or supporting AI infrastructure may invest heavily in equipment and related capacity. The San Francisco Fed’s May 2026 analysis found that AI-positive public firms’ investment growth was roughly 25 percentage points higher than that of other public firms during the first three quarters of 2025. In the authors’ analysis, AI-positive firms accounted for all public-firm capital-investment growth since 2024, while other firms collectively had slightly negative growth. These findings concern the paper’s public-firm sample and method; they are not claims about every U.S. company or the whole economy.
Investment can contribute to economic activity and strengthen expectations for companies positioned to supply or use AI. It does not establish that every project will earn an adequate return, or that a company’s share price is attractive at its current level. The San Francisco Fed analysis documents the investment pattern; returns on future AI spending remain a separate question.
What can limit AI-stock gains?
High expectations can make shares sensitive to disappointment
Good business prospects do not automatically make a stock a good value: investors also pay attention to the price relative to expected earnings. The Federal Reserve’s November 2025 Financial Stability Report said the S&P 500 forward price-to-earnings ratio was above its historical median, while its estimate of the equity premium was near a 20-year low as of October 2025. Those were dated valuation observations, not evidence that a market fall was imminent. When expectations are already high, a shortfall in results or outlook can matter more to prices.
The report’s asset-valuation discussion explains these measures. A forward P/E compares a share price with expected earnings; the equity premium is an estimate of the extra return investors demand for holding equities rather than safer assets. Neither measure predicts the timing or direction of the next market move.
Funding conditions and returns on investment matter
AI-related firms may fail to deliver earnings that justify their valuations; tighter financing conditions, leverage, or a pullback in investment could add stress. The IMF discussed these as risks and possible scenarios, not forecasts. Its January 2026 analysis places AI-driven optimism alongside the possibility that financial conditions or weaker investment could expose vulnerabilities.
Federal Reserve Governor Lisa D. Cook said in a September 28, 2026 speech: “a large portion of the rise in equity prices over the past few years can be attributed to enthusiasm about AI, and that added wealth appears to be feeding through to household spending.” Cook also cautioned that the timing and breadth of productivity effects are uncertain. The observation connects AI enthusiasm with household spending; it does not show that every AI company will become more productive or profitable. Cook’s speech on AI and the economy provides the full context.
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How to tell whether gains are broad or concentrated
When you see a headline such as “the market is up,” check which market measure and period it refers to. A daily index move cannot, by itself, tell you whether most stocks rose or whether a few giant companies carried the result.
Quick Recap
- Compare weighted and equal-weighted indexes: A gap between them can indicate that the largest companies are having a different effect from the rest of the index.
- Check the median constituent and advancing/declining shares: These help answer how the typical stock performed and how widespread gains were.
- Look at concentration: Identify whether a small number of companies or a particular sector dominates the index’s movement.
- For an individual company, separate the questions: Consider current earnings, expected growth, valuation, capital spending, and financing exposure rather than treating an AI label as a complete explanation.
- Match the time period: A claim about a specific session needs data from that same session. The historical figures above explain market mechanisms but do not establish what happened today.
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