Capex boom broadens beyond AI in 3 manufacturing sectors

Capital expenditure growth is spreading beyond artificial intelligence infrastructure into metals, machinery and broader industrial manufacturing, an economist said, pointing to rising order books that could extend the current equity rally beyond technology stocks.

"The capex story is no longer just about AI data centers. We're seeing a genuine broadening into traditional manufacturing sectors," the economist said in a research note published Friday. Metals and machinery orders have been climbing in recent months, the note showed, suggesting that corporate investment is gaining momentum across a wider swath of the economy.

The shift comes after two years in which AI-related capital spending dominated corporate investment plans. Hyperscalers including Microsoft Corp., Amazon.com Inc. and Alphabet Inc. have committed more than $200 billion combined to data-center buildouts since early 2024, according to company filings. But the latest data on industrial orders indicates that non-tech sectors are now joining the cycle.

Manufacturing purchasing managers' indexes in the U.S. and euro zone have moved closer to expansion territory in recent months, supported by rising demand for industrial equipment, construction materials and transportation gear. The broadening capex trend has implications for sector rotation: investors may begin shifting allocations from AI-focused tech names into cyclical industrials, metals producers and machinery manufacturers.

Where the orders are flowing

The strongest gains have appeared in three areas: primary metals, fabricated metal products and industrial machinery, the economist said. Orders for primary metals — including steel and aluminum — have risen as construction and automotive demand stabilizes. Fabricated metal products, used across energy, infrastructure and defense supply chains, have also posted gains. Industrial machinery orders, a bellwether for factory investment, have climbed as manufacturers expand capacity.

The trend mirrors earlier capex cycles when technology investment eventually pulled along the broader industrial base. In the 2017-2019 cycle, for example, a surge in software and telecom investment was followed within two quarters by rising orders for electrical equipment and machinery, according to Census Bureau data.

What this means for markets

For equity investors, the broadening capex cycle could support a rotation into sectors that have lagged the AI-driven rally. The S&P 500 industrials sector has trailed the information technology sector by roughly 20 percentage points over the past 12 months, creating a valuation gap that may narrow if manufacturing orders continue to strengthen.

"If the capex broadening sustains through the second half of 2026, it provides a fundamental underpinning for earnings growth beyond the tech sector," the economist said. "That's what a mature bull market needs to extend."

The next test comes with second-quarter earnings season, when industrial companies report order backlogs and capital spending plans. Investors will watch for confirmation that the trend is accelerating rather than peaking.

This article is for informational purposes only and does not constitute investment advice.