S&P 500 Industrials Hit Tech-Level Valuations on AI Buildout
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- S&P 500 industrials sector is trading at a P/E ratio above 30, well above its long-term average near 20 and now on par with tech valuations, according to VettaFi's Cinthia Murphy on CNBC's 'ETF Edge.'
- Alphabet raised its 2025 capex guidance to $195–$205 billion from the prior $180–$190 billion range, with executives warning spending could climb even higher in 2027.
- McKinsey & Company estimates global data center spending could reach nearly $8 trillion by 2030, with Nvidia CEO Jensen Huang calling it 'the largest infrastructure buildout in human history.'
- Caterpillar (XLI's top holding) and GE Vernova (third-largest) are both up over 50% year-to-date, with Caterpillar up roughly 160% from two years ago; GE Vernova holds a $176 billion order backlog despite a post-earnings selloff.
- Lockheed Martin rallied more than 10% on Thursday after beating earnings expectations, with LMT and RTX Corp. both up roughly 35% over the past year as aerospace and defense names capture 25% of XLI's sector allocation.
- Industrials ETFs have attracted about $23 billion in net inflows year-to-date across 60+ funds, with 34% of those flows going to actively managed products, per J.P. Morgan's Jon Maier.
- Rural power grids are being pushed to support data centers consuming up to 20 times their existing capacity, even as public opposition to new data center construction grows over strained grids and rising electrical costs.
Why it matters: Investors chasing the AI trade have expanded past chipmakers into the industrial backbone — Caterpillar, GE Vernova, and Lockheed Martin now command tech-like multiples, with $23 billion in ETF inflows validating the rotation. The P/E above 30 versus a long-term average near 20 means any stumble in the projected $8 trillion data center buildout by 2030 could trigger sharp corrections in names that have already doubled.
