AI spending faces its biggest test – yet US earnings keep climbing higher

Strong earnings help explain why US equities have remained resilient, but they do not remove the market’s concentration risk. Technology and communication services together represented about 43% of the S&P 500 at the end of 2025, up from roughly 9% three decades earlier.² With expectations and valuations elevated, investors are increasingly sensitive to the quality of earnings and the efficiency of investment spending.

The debate is most acute around hyperscaler AI capital expenditure. BlackRock estimates hyperscaler capex has increased by more than 80% year on year to approximately US$715 billion in 2026³. The concern is straightforward: spending can support suppliers and future growth, but it also raises depreciation, power and financing requirements before the associated revenue is fully visible. Earnings calls are therefore being judged on cloud demand, utilisation, pricing and the speed at which AI services convert into cash flow.

There are reasons to avoid treating all spending as wasteful. Analysis from BlackRock Fundamental Equities’ Technology team indicates that GPU projects can reach break-even in years three to four and generate an internal rate of return near 21% when revenue and contract assumptions are achieved.⁴

The investment case therefore depends less on the absolute size of capex than on whether hyperscalers can sustain utilisation, protect pricing and convert infrastructure into recurring revenue. Amazon chief executive Andy Jassey made similar comments when announcing the company’s Q2 earnings beat of around US$4 per share.⁵

“On average, it takes a little less than three years to break even on [current capex] investment. The service currently has a useful life of at least five to six years, and most of our AI capacity these days is being contracted for at least five-year terms”, Jassey said.⁶

AI infrastructure spending can be economically productive

Source: BlackRock Fundamental Equities Technology, May 2026. Illustrative data-centre GPU contract economics; assumptions are subject to change. For illustrative purposes only. IRR = internal rate of return, FCF = free cash flow

Investor allocations are reflecting the combination of earnings resilience and renewed risk appetite. Equity ETFs attracted US$680 billion globally in the first half of 2026, with investors rotating back towards US equities during the second quarter. Demand was not confined to US investors: flows into US-focused products in Europe were four times their year-earlier level in Q2.⁷

The same preference was visible in Australia. In June, the iShares S&P 500 ETF (IVV) attracted A$180.4 million of net creations and the iShares S&P 500 (AUD Hedged) ETF (IHVV) attracted A$114.9 million. Together, the two broad large-cap strategies gathered almost A$295 million in a single month. US mid- and small-cap exposures also recorded modest net inflows amid growing optimism around broadening US earnings and moderating US inflation.

Local ETF flows concentrated in broad US equities exposure

Source: BlackRock Australia primary-market creation and redemption data, June 2026. Net flow equals creations less redemptions. Primary-market activity can also reflect authorised-participant inventory management. Past flows are not a guide to current or future flows and should not be the sole factor of consideration when making an investment decision.

For Australian investors, the appropriate access point to the US market depends on whether the priority is broad market exposure, currency management, an active source of potential excess return or a more concentrated allocation to technology leadership.

• iShares Nasdaq Top 30 ETF (ITEK) - offers more targeted exposure to major Nasdaq-listed companies at the centre of AI - cloud computing, semiconductors and digital platforms.
• iShares U.S. Factor Rotation Active ETF (IACT) - dynamically rotates across quality, value, momentum, growth, size and minimum-volatility factors, seeking to outperform the US large- and mid-cap market. IACT is worthy of consideration for investors looking to take a more risk-controlled approach to core US equity exposure amid increasing market concentration.
• iShares S&P 500 ETF (IVV) - provides broad exposure to 500 leading US companies and can serve as a core international equity holding.
• iShares S&P 500 (AUD Hedged) ETF (IHVV) - provides similar large-cap US exposure while seeking to reduce the impact of movements in the Australian dollar. As the local currency has strengthened against the US dollar, average monthly flows to IHVV have almost doubled in the first half of 2026.⁸

The Q2 season has reinforced the fundamental case for US equities: more than seven in ten reporters have exceeded pre-season net income expectations, aggregate results are ahead of forecast and revisions have broadened beyond AI-linked companies. The caution is that strong results are increasingly required simply to meet elevated expectations.

Hyperscaler guidance on capital spending and monetisation will remain central, but the improvement across industrials, financials and the broader non-AI market suggests the earnings story is becoming less dependent on a handful of mega-cap names. For Australian investors, ASX-listed iShares ETFs provide a scalable way to retain US exposure while choosing the mix of index, currency, active and thematic risk that best fits the portfolio.