The $9 Trillion Illusion: Why AI Is Hiding a Lagging US Market

The S&P 500 has ballooned by roughly $9 trillion since January, a number that makes the index look invincible. Investors are clapping for the tech sector while the rest of the market quietly bleeds. This is a dangerous kind of rally because it mimics broad strength but is actually a narrow bet on one specific technology.

Strip out the AI names and the picture flips. The US equity market is not beating Europe; it is slightly behind. A detailed analysis by Yahoo Finance highlights this critical divergence. The US advantage is real, but it is almost entirely built on the capital expenditures boom of the past few years.

The Old Economy Reality Check

To see the true state of the US economy, look at what remains after removing the AI stocks. An index of the so-called old economy has gained just 5.5% since January 1. This contrasts sharply with the 13.5% gain of the full S&P 500. The gap between these two numbers is where the illusion lives. It suggests that most US market value is driven by a handful of companies building infrastructure for the next decade.

European markets have found their own strength in the meantime. The STOXX 600 index, tracking the leading 600 companies in Europe, has gained roughly 5.6% over the same period. This is nearly identical to the US old economy performance. BNP Paribas economists James Egelhof and Andrew Husby noted that the bloc has probably missed the AI investment boom. But by missing it, they have avoided the extreme concentration risk that US investors are currently carrying.

Why the US Still Leads

It would be wrong to say the US has no advantage. The US was outperforming Europe before ChatGPT launched in November 2022. The American economy is more dynamic for reasons unrelated to artificial intelligence. Demographics, fiscal policy, and stronger capital markets all play a role. The US also has abundant and cheap domestic energy, a massive competitive edge in an increasingly energy-intensive world.

The US corporate sector is the most powerful and well-capitalized in the world. This structural advantage has existed for decades. However, the AI investment boom has disproportionately accrued in the US market. The capital expenditures boom has flowed into US companies and investors, magnifying an existing lead. The AI boom did not create the US advantage, but it is amplifying it to a degree that feels unprecedented in modern financial history.

The Infrastructure Gap

The physical reality of this divergence is visible in the data centers being built worldwide. Global AI investments are expected to exceed $1 trillion this year, with Bank of America projecting the figure will grow to roughly $1.4 trillion in 2027. But the hardware investment is not spread evenly. The US and Canada account for roughly 60% of new data center capacity additions in 2026, according to Goldman Sachs. Europe’s share is a mere 10%.

This concentration of physical infrastructure has profound implications for equity performance. Where the US hosts roughly three-quarters of global computing capacity, the eurozone hosts only 5%, per ECB data. This is not just a difference in software adoption. It is a difference in who is building the engine of the future. The US is capturing a much larger share of direct investment, corporate profits, and equity performance because the hardware is physically located on American soil.

The European Challenge

Europe’s lag is not just about missing the AI wave. It is a structural issue. European capital markets are smaller and more fragmented. Bank-based financing can favor incumbents, making it harder for new, agile technology companies to raise the capital needed to compete with Silicon Valley. Regulatory and market fragmentation can slow the diffusion of new technologies across the continent. These are deep-rooted problems that will not be solved by a single software update.

The result is a market that is more stable but less explosive. European investors are not exposed to the same volatility as their American counterparts. They are not riding the same roller coaster. But they are also not capturing the same upside. In a market where the biggest winners are also the most volatile, this is a trade-off that many investors are starting to price in.

What This Means for Investors

The key takeaway is that the US market is not uniformly strong. It is bifurcated. You have a group of companies benefiting from the AI boom, and they are performing exceptionally well. You have everyone else, who is performing roughly in line with Europe. If you are holding a broad US index fund, you are betting on both groups. If you are picking individual stocks, you need to know which group you are in.

The next few years will be critical. If the AI boom continues to expand, the US will likely maintain its lead. But if the hardware investment slows, or if the benefits of AI do not translate into broad-based economic growth, the US market could face a significant correction. The old economy is not dead, but it is not leading the charge. The future is being built in data centers, and most of them are in the United States.