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AI HIDES IN PLAIN SIGHT ACROSS THE MARKET

AI is usually thought of as a large-cap growth story centered on chipmakers and mega-cap technology companies. But according to Carson Group chief macro strategist Sonu Varghese, the AI theme is showing up in far more corners of the market.

That may come as a surprise. After all, the Magnificent Seven MAGS.K have underperformed this year, and both mid-cap and small-cap stocks have outpaced the S&P 500 .SPX. On the surface, that looks like a broadening market no longer dependent on the AI trade.

A closer look, however, suggests otherwise.

In a note out on Wednesday, Varghese said that in the first half of 2026, technology stocks within the Russell 2000 .RUT gained 52% on a weighted-average basis and contributed 8.6 percentage points to the index's 23.1% return. Industrials were the next-largest contributor, adding another 4.1 percentage points.

Varghese then dug deeper using two approaches. First, he examined which Russell 2000 stocks were highly correlated with the Technology Select Sector SPDR ETF XLK.P. Second, he used an AI model to identify companies with meaningful ties to the AI ecosystem.

Both approaches reached a similar conclusion: more than half of the Russell 2000's first-half gain was tied to AI.

The correlation analysis found that technology-linked stocks accounted for 13.4 percentage points, or 58%, of the index's total return. The AI-classification approach found that AI-related companies contributed 12.1 percentage points, or 52% of the gain, despite representing only about 24% of the index.

What's especially notable is where that AI exposure shows up. Many of the top-performing small-cap industrial stocks aren't software or semiconductor companies. Instead, they're tied to data centers, power systems, cooling infrastructure, electrical equipment, semiconductor supply chains, electrification and even defense-related AI applications.

Varghese’s takeaway is simple: AI's footprint now extends well beyond Big Tech. Investors looking to diversify by size, sector or style may still be carrying significant AI exposure — whether they realize it or not.

(Terence Gabriel)

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