Currently, rising chip prices and capacity buildouts are shifting momentum toward semiconductor equipment stocks, even as large language models (LLMs) become commoditized.
Global growth is holding up, and semiconductor earnings may be peaking, which could leave room for other sectors to catch up.
Longer term, from railways to the internet, the companies that built on top of new technology have historically captured the real value. AI may follow suit.
AI infrastructure has been a key driver of market gains for more than a year now. But we believe the bigger test for AI is coming into view, and it won't be centered around capacity or pricing. It'll be what companies actually build with AI, and how that shows up in the industries and daily life that it's meant to transform.
Another Quarter, Another AI-Led Gain
The AI infrastructure buildout drove equity markets higher in the second quarter of 2026, much as it did in the first quarter and all of 2025.
U.S. equities posted double-digit returns,[1] and their emerging markets (EMs) brethren did even better.[2] Much of that performance was a recovery from the March slump, when rising oil prices and escalating energy bottlenecks threatened global growth. Since mid-May, equity markets have been exceedingly volatile, but largely flat.[3]
The AI Trade’s Next Rotation
In the near term, AI buildout stocks appear tired as inflationary pressures are motivating a response. South Korea’s memory chip prices are up some 250% year-over-year and 50% quarter-over-quarter. In response, Apple not only announced significant price increases on its consumer products, but it is also actively negotiating sourcing its chips from Chinese suppliers.
Not surprisingly, when Korea announced a half-trillion-dollar investment in capacity expansion for advanced memory chip manufacturing, the markets welcomed the decision. We believe capacity expansion across the entire supply chain explains why market leadership within the AI trade is rotating into semiconductor equipment stocks.
Quarter-Over-Quarter Change in South Korean Export Prices (in KRW)
Sources: Macrobond and William Blair, as of May 2026. DRAM refers to dynamic random access memory.
Meanwhile, at the front end, leading LLMs appear to be reaching a stage of “good enough” for some applications, and open-source models are a close second at a fraction of the cost. Users can now switch between models relatively quickly and token prices are beginning to decline—a pattern we expect to accelerate in the coming quarters. But how these AI models are employed to improve efficiencies, as well as to generate revenue, is the critical next question.
Performance of LLM Token Prices Since December 2025
Sources: Silicon Data, Bloomberg, and William Blair, as of July 3, 2026. The Silicon Data LLM Token Expenditure Index (SDLLMTK) is published daily by Silicon Data as a normalized blended rate expressed in U.S. dollars per million tokens, drawn from observations across frontier API providers, open-weight inference platforms, brokered dedicated-instance markets, and self-hosted reference deployments.
The Race Towards Adoption
The AI infrastructure buildout is not finished. Yet, beyond the next model announcement, we will be looking for evidence of how this technology is transforming industries and our lives.
New technology infrastructure is the foundation—but almost never the biggest profit pool. This pattern has been repeated for 200 years, with railways, electricity, and the internal combustion engine. Every time, the real money was made in applying these new technologies.
Two recent examples help make this point vividly.
1. The Internet
Cisco was the undisputed king of the internet buildout; revenues were up nearly six times in five years, and the company generated $60 billion in cumulative revenue and $22 billion in operating cash flow between 1995 and 1999 (in 2017 dollars). Impressive.
But then look at what was built on top of that infrastructure: Facebook generated $107 billion in revenue and $59 billion in operating cash flow in just five years (between 2013 and 2017), while Google generated $402 billion in revenue and $140 billion in operating cash flow over the same five years. The pipes were valuable, but the businesses that operated through them were worth an order of magnitude more.
2. The Car
Today, roughly 15 million to 16 million vehicles are sold annually, generating roughly $750 billion in revenue for automakers. That may sound like a large number, but consider this: over a vehicle’s 12-year life, insurance companies collect approximately $4.3 trillion in premiums.
The people who made a car engine built a $750 billion industry; the people who figured out what to do with 280 million cars on the road, however, built something six times larger—and they never touched a piston.
Growth Continues to Broaden
We believe AI will be no different. The foundation matters, but it is rarely the biggest source of wealth from new technology. While AI winners have yet to emerge, global growth in the second half of 2026 looks robust: the United States and Japan are both growing smartly, and activity in Europe is likely troughing right now.
Good economic activity and ongoing infrastructure buildout also appear likely to support solid earnings growth, though leadership may be challenged.
Semiconductor companies have tripled their net income growth over the past four quarters, having beaten expectations in each quarter since the second half of 2025, by a larger amount each time. For the second quarter of 2026, the cohort is expected to deliver annual earnings growth of approximately 130%, which may mark a peak in near-term sequential growth rates. At the same time, expected earnings growth outside of semiconductors and energy is decidedly lackluster.
We expect companies that can deliver small beats, or even see sequential improvement in their operating environment, could potentially be handsomely rewarded.
Olga Bitel, partner, is the chief investment strategist at William Blair.
[1]The MSCI USA IMI is a broad equity index designed to represent the performance of the entire U.S. stock market across all size segments. [2]The MSCI EM IMI is a broad equity index that tracks the performance of EM stocks across all company sizes. [3]The MSCI World ex USA IMI is a broad global equity index that measures the performance of developed markets outside the United States.
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