Where Earnings Growth is About to Accelerate

Next year’s AI investment is expected to double last year’s as a share of GDP.

That’s both exciting and dangerous.

Every major market top in history shared the same characteristic:

Today, that theme is AI.

I’ve already shown you why that concerns me…

Here’s the important part:

You make money by understanding where money flows next.

That’s exactly what this week’s PMI reports just revealed.

After breaking down both reports, I spotted several industries ready to squeeze a new wave of EPS upgrades (which can lead to higher stock prices.)

Today, we’ll go through what the PMIs had to say about these industries.

Here’s where EPS upgrades may come next.

Both PMIs expanded last month.

Prices continued to increase as input cost instability becomes the main theme for most operators in the US.

This has everything to do with the unprecedented levels of demand and backlogs related to the AI infrastructure buildout.

Still,

Employment contracted (again.)

Simply put, these levels of concentrated growth and pricing power have benefitted roughly 20% of the economy, while the bottom 80% is still laying off workers because of weak demand and thinning margins.

I call this selective stagflation.

Just like GDP and the S&P, if you were to remove the AI component from it all, you’ll quickly see that most of the market remains in deeply bearish expectations:

2026 has been summarized in two main narratives:

Everything else remains well below adequate returns relative to how much volatility has been realized in the financial markets.

Therefore,

I can confirm just how selective you and I need to become for the second half of the year, even if the PMIs start to look bullish on the surface.

Still,

The quarterly trend (including July) has revealed a few industries worth watching.

Some in the AI supply chain, others still a part of my long mid-caps thesis which remain in a watchlist awaiting price confirmation to pull the trigger.

Starting in manufacturing, here’s where new order growth centered:

Specifically the first two, which has a lot to do with both the AI infrastructure buildout as well as the top of the K-shaped consumer economy.

Both of which currently drive ~80% of GDP growth during the first half of 2026.

A theme I covered extensively on Monday of this week.

I believe that as long as PMIs continue to confirm what GDP is screaming at us, our portfolio will greatly benefit from the names it currently holds as live positions and in the pipeline waiting to be executed upon.

Confirming through services now,

Retail trade activity expansion confirms what we’ve noticed in manufacturing’s breakout of the apparel industry.

Another win for the consumer names we’re already hunting for the portfolio.

An accelerating breakout is also happening in the transportation and warehousing industry.

I suspect this is due to:

The beautiful thing about our process is that it takes the guesswork out of your investment decisions.

Boiling down these GDP, PMI, and ETF trends will leave you with the following criteria.

Markets expect outsized EPS growth out of:

All of which have been confirmed in last month’s PMI trends.

From here, it gets a lot easier.

The reason these expectations (justified by the data) exist, are because of the way business owners feel about their industry right now:

The continued demand surge for computer (AI) components is driving an all-out price war.

That’s keeping margins and future revenue expectations high for a select few names.

Secondly, the Iran war disruptions drive decision-makers to pull their future orders forward, realizing cash flows for those in the middle.

Last but not least,

Lead times and tariffs all have to do with transportation and automotive players, where products exposed to tariffs will change trade routes, and American-based automobile assembly offering tax breaks for buyers.

In a nutshell, this is why demand showed up for:

Save this for the rest of the month, and use it as a map to dig up new trade ideas for yourself.

Even better,

Claim your seat at the insider’s table, and join Offside Premium to receive my finalized watchlist and trade execution alerts.

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If the computer and electrical equipment theme continues to heat up in the second half of the year…

I would like to see the SMH ETF break away from the previous overhead resistance made, which represented a 50% retracement from its last leg lower.

So far, we remain in a lower-low lower-high pattern, and that’s all you need to know.

Breaking this ~$590 resistance could reignite the path toward a new all-time high, especially as the GDP and PMI data continue to favor an EPS upgrade for these companies.

However,

As I mentioned in this piece, you need to become more selective in your screening.

Were the ETF to fail despite continued PMI expansion, I believe stock selection alpha will be the only thing to carry you into the green from here.

This trade is the easy take as long as it breaks.

If it doesn’t…

You know where to find alpha, as I delivered some already earlier today:

Click here to see our latest trade alert for the AI rebound.

I will take the weekend to advance on this research and present it to you next week if enough evidence supports alpha generation.

Meanwhile, here’s a take from Goldman Sachs on that very subject, gain some exposure to it and ease yourself into what we’ll cover next:

Until next time,

OFFSIDE RESEARCH

Against the Tape, Ahead of the Curve.