S&P Industrials Hit Tech-Level P/E on AI Boom
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- S&P 500 industrials are trading at a P/E ratio above 30, well above the sector's long-term average near 20 and roughly matching tech valuations, per State Street's XLI ETF and VettaFi's Cinthia Murphy.
- Alphabet raised its 2025 capex guidance to $195-205 billion from prior $180-190 billion and warned 2027 spending could go even higher, anchoring the demand story for industrial suppliers.
- McKinsey estimates global data center spending could reach nearly $8 trillion by 2030, with Nvidia CEO Jensen Huang calling the buildout "the largest infrastructure buildout in human history" in a March blog post.
- Caterpillar (XLI's top holding) and GE Vernova (third-largest) are both up over 50% year-to-date, with Caterpillar up nearly 160% over two years; machinery and electrical equipment makers now make up roughly 21% and 14% of XLI, respectively.
- Lockheed Martin rallied more than 10% on Thursday after beating quarterly estimates, with RTX Corp. up roughly 35% over the past year as aerospace and defense — 25% of XLI's allocation — ride rising global defense spending.
- Investors have poured $23 billion year-to-date into 60-plus industrials ETFs, with 34% of flows going to actively managed funds, per Murphy; J.P. Morgan's Jon Maier noted most XLI trades remain passive, signaling long-horizon conviction.
Why it matters: Wall Street is now paying tech-like multiples for the physical pick-and-shovel players of the AI boom — machinery, electrical equipment, and defense firms whose order books are tied to data center construction. With Alphabet alone guiding up to $205 billion in 2025 capex and McKinsey projecting $8 trillion in data center spend by 2030, XLI's 50%+ gains in Caterpillar and GE Vernova reflect a re-rating that ties industrial earnings directly to hyperscaler balance sheets, while $23 billion in ETF inflows shows institutions are repositioning around that thesis.
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