Summary The S&P 500 Index is poised for approximately 10% growth in 2026, driven by ongoing Fourth Industrial Revolution (4IR) tailwinds and sector rotation. Industry 4.0 technologies—AI, virtual reality, IOT, blockchain—continue to fuel outperformance for select growth stocks like POWL, FLEX, STRL, and PSIX. Risks include overinvestment in AI infrastructure, concentration in mega-cap tech, and macro uncertainties such as inflation and credit market stress. Broader earnings growth and sector rotation beyond the top 10 S&P 500 holdings present fresh opportunities for 2026 portfolio positioning. As part of my due diligence for securities that I am interested in, I follow the macro events that dictate which investments may perform better at various times throughout the economic cycle. Despite all the recent noise about the economy in the U.S., and geopolitical rumblings heard around the world, I am optimistic regarding the stock market in 2026. After all, we are only about 3 years into the latest bull market and tailwinds from the Fourth Industrial Revolution , or 4IR (also called Industry 4.0) are just beginning to propel the S&P 500 (SP500) to new highs in 2025 which I believe will continue for at least another year or two. The term Fourth Industrial Revolution was coined by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. He introduced this concept in his book, The Fourth Industrial Revolution, published in 2016. In it, he discusses how emerging technologies like artificial intelligence the Internet of Things, and robotics have begun to merge with the physical, digital and biological worlds and, thus, have revolutionized economies, industries and societies in the process. History of US Bull and Bear Markets This chart from First Trust illustrates the historical cycle of bull and bear markets since 1942. The average bull market has lasted 4.3 years while the average bear market lasted just under 1 year. First Trust Yogi Berra once said, “it’s tough to make predictions, especially about the future.” Well life is tough and investors want to know what to expect, so here it is. My prediction is that the S&P 500 will end 2026 at a level about 10% higher than the end of 2025. The current S&P 500 index is right about 6,850 today so I will use that number as the baseline for my prediction, putting my expected ending S&P 500 value as of 12/31/26 at 7,240. I believe that the drivers for the current bull market are still in place to drive further growth, albeit slower growth than we have experienced over the past 3 years. The current bull market that started in early 2023 still has another year or two left in it in my opinion. The prospect of likely further interest rate cuts should provide some stimulus for that growth as well. I believe that the growth will slow slightly from 2025 levels in 2026 but the momentum from companies benefiting from the buildout of AI data centers and all the energy and power infrastructure necessary to support all that expansion will continue to drive further growth next year. The drivers for that mid-range growth of about 10% next year (slower than the 20%+ in 2023 and 2024 and the 16.5% YTD growth) include many of the positive impacts that we are seeing on companies that are benefitting from advances in AI, robotics , virtual reality, quantum computing, the Internet of Things (connected intelligent devices), blockchain, and other advanced Industry 4.0 technologies. Businesses are undergoing transformation and those companies that are able to innovate and leverage the use of new or advanced technologies in their business models stand to benefit the most from 4IR. The chart below from Research.com suggests that changes in customer expectations are also impacting the digitalization of business models and product innovation. Research.com Growth Stocks Benefiting from 4IR With Momentum Heading into 2026 I have been writing about 4IR and stocks that have shown great growth potential due to the business benefits from the application of Industry 4.0 technologies since March 2023 when I first covered Powell Industries (POWL), calling it a Growth Stock for the Fourth Industrial Revolution . Since that initial coverage when I rated POWL stock a Hold, it delivered a total return of nearly 650%. Seeking Alpha Despite the big runup in price, POWL gets Buy ratings from both Wall Street and SA Analysts and has very good Quant scores and appears to have more upside ahead with a $1.4B backlog . This comment from CEO Metcalf on the POWL Q4 2025 earnings report summarizes the company outlook for 2026 from their perspective: "We are confident that the strong commercial momentum we experienced across our key end markets in fiscal 2025 will carry into fiscal 2026." Another example of a company that has realized benefits from its investments in Industry 4.0 technologies that I first covered in July 2023 is Flex (FLEX), formerly Flextronics International. This was what I wrote in the summary of that article: Flex, formerly known as Flextronics International, is embracing AI and machine learning to optimize manufacturing processes, reduce material loss, and improve customer satisfaction. The company is leveraging Industry 4.0 technologies in areas such as automation, connectivity, and continuous improvement in processes. FLEX currently gets Strong Buy ratings from Wall Street and expects to see 35% data center revenue growth in FY26 as AI-driven demand accelerates. Yet another example of a company that I have covered multiple times that has seen benefits from 4IR trends and advancements is Sterling Infrastructure (STRL). I wrote about STRL in February 2024 when I rated the stock a Buy and it has delivered a 282% return since then. This was what I wrote in that article: Like other small-cap growth companies that I covered in my recent article , the Fourth Industrial Revolution, or Industry 4.0 as it is also called, is driving some of the growth opportunities for STRL. Although the company may not directly offer Industry 4.0 technology as part of their business practices, those trends are at least in part responsible for driving business growth. Another growth stock that I first covered in July 2024 when I rated it my Best Growth Stock for 2024 is Power Solutions International (PSIX). That stock has also experienced significant outperformance in the past two years due to data center demands and a return to profitability as a result. The stock has appreciated more than 450% since that article was published and is up nearly 100% in the past year. Seeking Alpha Although the PSIX stock price plummeted after the Q3 earnings report which included 60% EPS growth, it still appears inexpensive and gets Strong Buy ratings from Wall Street. The CEO indicated a very positive outlook for growth continuing to ramp up in his earnings summary ( bold emphasis mine). Dino Xykis, Chief Executive Officer, said, “We achieved the highest sales in our company’s history this quarter, delivering strong financial performance with sales increasing 62% and net income rising 59%. These results underscore the robust demand for our power systems solutions, particularly within the data center market . During the quarter, we expanded our manufacturing capacity and increased production across key data center product lines. We are continuing to ramp up production to ensure on-time delivery while implementing targeted operational improvements to enhance efficiency, execution and future growth going forward.” There are other examples of growth stocks that I have not previously covered in detail but that I have been following and that are also seeing benefits from the AI data center buildout and growing demands for the infrastructure to support the power and energy needs of this blossoming industry. A few examples that come to mind include: Argan, Inc. (AGX), Vertiv Holdings (VRT), Dycom Industries ( DY ) and Primoris Services (PRIM). The chart below shows the 3-year total return for each of those 4 stocks compared to the S&P 500. Seeking Alpha Blockchain Technology and Bitcoin According to this article on 4IR from Research.com , Klaus Schwab described blockchain as the heart of the Fourth Industrial Revolution. One of the key features of blockchain technology is that it makes an irreversible timeline of data, as each block is always stored chronologically. Transactions remain visible to all users in the network, and these cannot be changed or altered once added to the shared ledger. This linear, linked structure prevents users from making changes to transactions, making the system tamper-proof. One application of blockchain currently gaining traction is Bitcoin. Experts have explored the potential of Bitcoin and blockchain technology in the shift to a new economic system under the Fourth Industrial Revolution. According to Blockchain co-founder Nicolas Cary, Bitcoin and blockchain can prove crucial to the shift to the circular economy, due to Bitcoin’s ability to perform frictionless, transparent financial transactions without the need for intermediaries. Whether or not you understand the “value” in bitcoin (BTC-USD), it is here to stay and has been growing in both price and demand over time from financial institutions and intermediaries all over the world. As an investment, Bitcoin has far outpaced the S&P 500 over the past 3 years despite its recent pullback. Seeking Alpha In fact, Blackrock recently announced that its Bitcoin holdings have risen more than 250% since the SEC approval of spot Bitcoin ETFs in Q4 2024. Beyond cryptocurrencies blockchain technology has other important uses as well that are being driven by Industry 4.0 demands including the use of “ smart contracts ”. To have the capability to validate, verify, capture, and implement agreements among parties, smart contracts combine with Distributed Ledger Technology and the Industrial Internet of Things. After collecting actual, legal events, a smart contract gathers IoT data—business processes, meters, sensors—to allow for performance assessment. Afterward, this information communicates the automated rules of a contract by posting outcomes and supplemental evidence to the blocks (Schmitt et al., 2019). Risks and Challenges to 4IR Beyond the ethical concerns around AI, there are additional potential challenges associated with the Fourth Industrial Revolution that could derail the growth story in the coming years. The rapid pace of technological innovation requires governments to become more “agile”. Governments, including the U.S. and other developed nations in particular, must develop sustainable models for adapting to 4IR. In other words, governments and private industry must work together in making policy and developing regulations to support innovation while minimizing societal impacts. Businesses must also become more agile and adapt to changing customer expectations. Concerns around privacy and transparency around the use of “big data” need to be addressed. For example, Salesforce ( CRM ) witnessed the impact of souring consumer sentiment in 2025 around its product offerings despite seeing substantial demand for its AI-centric agentic business model. Even after reporting excellent results in its latest quarterly report and after delivering upbeat guidance for 2026, CRM is the 2 nd worst performer in the Dow index in 2025. "CRM reported its FY3Q26 results with the top-line coming in line with Street expectations while seeing a significant bottom-line beat with better-than-expected FY4Q26 top-line guidance as the company continues to invest aggressively in its Agentforce strategy to reaccelerate growth," said analysts led by Dan Ives. The analysts added that Salesforce provided fourth quarter fiscal 2026 guidance which came in above Street estimates on the top-line while meeting the Street’s EPS estimate as the company balances investments into growth with margin expansion and free cash flow, or FCF, generation. "This was a step in the right direction for CRM with a long way to go as the Agentforce strategy builds incremental momentum with a strong pipeline to capitalize on while balancing investments into growth initiatives with bottom-line expansion over the coming quarters," said Ives and his team. Other risks include the massive investment in AI data centers and the infrastructure needed to support the growing power demands. This recent report from S&P Global highlights those risks. Data center and AI infrastructure investment has grown rapidly, with its contribution to economic growth already evident. Sector market fundamentals are healthy, and digital infrastructure has become a central theme for investors and lenders. With the AI transformation still in its early stages, we expect this will remain the case for several years, supported by robust demand, limited supply, strong earnings, high prices and narrow corporate spreads. However, with such capital intensity and investor appetite, competition is also increasing fast. This could lead to higher leverage, unsustainable asset valuations, reduced spread differentiation across the asset-quality spectrum and more aggressive financing structures. These are all typical ingredients for busts and highlight the importance of data center risk management. Other longer-term risks for data centers include overbuilding, lower residual values, obsolescence, tenant credit quality and regulatory requirements. We believe these risks will not be uniform among market participants should AI revenue promises fade. The associated risk with all this massive capex spending by many of the big tech companies like Nvidia, Amazon, Meta, Google, and others is that it has led to concentration risk in the S&P 500. The top 10 holdings in the SPY account for nearly 40% of the total market value. SPY top holdings (Seeking Alpha) However, as we enter the month of December 2025 there is some sector rotation occurring which broadens the depth of the bull market , offering additional growth opportunity in 2026 for many of the companies outside of the top 10. As fellow analyst, Lawrence Fuller writes, this broadening of the bull market is another investment theme to watch in 2026. This will be one of my investment themes for 2026, as I see the improvement in earnings growth breadth narrowing the sector performance differential that has been the most outstanding characteristic of this bull market. Seeking Alpha Additional macro risks to consider that could influence my prediction for a mildly bullish market in 2026 include: Potential for rising inflation as the US economy re-accelerates. De-globalization of supply chains and manufacturing, contributing to a continued debasement of the USD , leading to a shift toward non-US investments and a further surge in gold prices. AI “bubble” bursting, causing the Mag 7 stocks to suffer a major market correction and impacting the broader market. More private credit “cockroaches” appear and the credit markets see wider spreads leading to a contraction in fixed income investments as risk accelerates. And of course, there is always the possibility of a “Black Swan” event, something that nobody can predict. If that happens, all bets are off. Meanwhile, I recommend staying invested and do not veer from your investment strategy unless you are completely dependent on NVDA stock going to the stratosphere. In that case, you may want to adjust your strategy to account for that concentration risk.
