Is Wall Street’s AI boom spreading to main Street? By Investing.com

The market is starting to re-rate AI from a narrow capex story into a broad nominal-growth accelerator. That matters because the first-order beneficiaries are no longer just the obvious hyperscalers; the second-order winners are small-cap service firms, industrial suppliers, data-center adjacent construction, and labor-intensive businesses that are seeing demand before the macro data fully reflects it. If that diffusion persists, it reduces the odds of an “AI kills jobs” slowdown and instead supports a higher-for-longer earnings environment across cyclicals.

The inflation read-through is the key tension. AI-driven investment is clearly boosting activity, but it is also keeping input costs sticky through wages, construction, power, and equipment demand, which can make the Fed more cautious than growth bulls expect. The near-term risk is that markets celebrate the growth impulse while underpricing the policy response: stronger activity plus elevated prices is the mix that can pressure duration and narrow leadership, especially if oil or geopolitical shocks hit at the same time.

Contrarian angle: the consensus may be too focused on whether AI justifies mega-cap tech multiples, and not focused enough on the second-wave beneficiaries where valuation is still reasonable. Small businesses and industrials tied to compute buildout may have more operating leverage than the AI leaders themselves, while any disappointment in broad adoption would likely first show up as a capex air pocket in semis and power infrastructure. Over the next 1-3 months, the most important catalyst is whether this strength in labor, manufacturing, and construction keeps broadening instead of staying concentrated in data-center spending.

The setup argues for being long the “AI diffusion” trade, but with hedges against policy and geopolitical volatility. If the macro data keep improving, the market should favor beneficiaries with less multiple risk than top-tier AI names; if not, the correction will likely hit the most crowded AI expressions first. The asymmetry is better in the second-order winners than in chasing the already-expensive leaders after a large run.