Key Points:
- Global momentum stocks are experiencing their best performance run on record, driven almost entirely by the relentless rally in artificial intelligence.
- Goldman Sachs reported that its momentum factor has jumped 25% over the past three months, a pace that has historically signaled extreme market crowding.
- The S&P 500’s gains are highly concentrated, with technology stocks accounting for 85% of total returns while the rest of the index rose just 3%.
- Unlike previous speculative tech bubbles, this historic rally is backed by rising corporate earnings, with 2026 EPS forecasts up 8%.
The relentless rise of artificial intelligence has sparked a historic rally in global financial markets, driving “momentum stocks” to their best performance run on record. According to recent quantitative analyses by leading Wall Street investment banks, the simple strategy of buying recent stock market winners has delivered unprecedented returns. Driven by a narrow group of high-flying semiconductor and cloud computing firms, this momentum factor has completely outpaced traditional value-based investing, pushing the benchmark S&P 500 index past the historic 7,500 threshold for the first time.
The velocity of this momentum rally has caught even seasoned quantitative strategists by surprise. A recent market analysis from Goldman Sachs Group Inc. revealed that its proprietary momentum factor has surged 25% over the past three months alone. This represents one of the sharpest and fastest momentum rallies in market history. The extreme price action has fueled massive capital inflows into factor-based exchange-traded funds, such as the iShares MSCI USA Momentum Factor ETF (MTUM), which has gained more than 20% year-to-date, easily doubling the S&P 500’s general return of roughly 8%.
However, this explosive growth has created an exceptionally concentrated stock market. The latest data shows that the S&P 500’s year-to-date gains rely almost entirely on a tiny handful of technology companies. Specifically, technology stocks alone accounted for a staggering 85% of the index’s total return. In contrast, the S&P 500 excluding the technology sector has risen a meager 3% over the same period. This stark divergence highlights a dual-speed economy in which companies with direct exposure to AI are booming, while traditional businesses struggle amid high interest rates and elevated operating costs.
No company illustrates this hyper-concentration of market power better than semiconductor pioneer Nvidia Corp. The company, which designs the advanced graphics processing units (GPUs) that power generative AI models, has become the undisputed scorecard for the entire tech trade. Nvidia’s market capitalization briefly approached $6 trillion during its recent seven-day winning streak. Today, the chipmaker accounts for roughly 9% of the S&P 500 by market value and has single-handedly contributed 20% of the index’s total return this year, leaving the broader market highly vulnerable to any company-specific disappointments.
This level of narrow market leadership has triggered urgent warnings from prominent Wall Street strategists. Analysts at Barclays Plc and Goldman Sachs have noted that the current concentration of momentum trading has reached extreme levels that historically precede sudden, highly volatile market corrections. The investment banks pointed to similar speculative episodes in 1998, 1999, 2015, and 2021, when crowded momentum trades eventually ran out of gas, triggering painful selloffs that dragged down wider stock indexes.
Despite these historical parallels, economists note a critical difference between the current AI boom and the speculative dot-com bubble of the late 1990s. While previous tech rallies relied heavily on multiple expansion and pure hype, the current momentum surge relies on genuine, high-quality earnings growth. Bottom-up consensus forecasts for S&P 500 earnings per share (EPS) in 2026 and 2027 have both risen 8% this year. These upward revisions prove that companies are actively translating the demand for AI infrastructure into massive, real-world corporate profits.
However, even these earnings revisions exhibit a high degree of sector-specific concentration. According to the Goldman Sachs report, almost all of the upward profit revisions cluster within AI infrastructure companies and energy producers that benefit from the massive electricity demands of modern data centers. Excluding these specific AI-linked and energy firms, the projected 2027 earnings estimates for the rest of the S&P 500 have remained completely flat this year. This data suggests that the underlying business environment for non-tech companies is far more fragile than the headline index numbers indicate.
This concentration of performance means that traditional portfolio diversification has actually acted as a drag on returns. Active fund managers who rely on traditional value metrics, such as price-to-book or price-to-earnings ratios, have struggled to keep up with the market’s breakneck speed. While momentum’s motto is “buy high, sell higher,” value investing’s mandate is “buy low, sell high.” In a market completely dominated by a single, multi-trillion-dollar technology theme, the discipline of value investing has left many professional money managers far behind passive index funds.
As the trading year progresses, the key question for global investors is whether this momentum-fueled rally can broaden out to other sectors. If interest rates begin to decline and global economic tensions ease, capital could successfully rotate into lagging cyclical and small-cap stocks. However, if AI infrastructure spending remains the only game in town, the market’s extreme concentration will continue to rise. Navigating this record-breaking run will require investors to maintain a delicate balance between riding the powerful AI wave and protecting their capital from a sudden, crowded-trade reversal.
