98% of US households aren't paying for AI yet

State of Markets II argues that technology has become the dominant driver of markets, accounting for roughly 76% of the S&P 500’s earnings growth in 2026 and compounding earnings since 2023. A central theme is the rotation from “bits to atoms”: AI-driven capex has revived hardware and infrastructure - semiconductors, power, networking, memory, robotics and manufacturing - funded largely by hyperscaler free cash flow and rising debt. Compute demand is outpacing supply, keeping GPU rental rates and residual values high (even older A100s are holding price), while AI adoption remains early: about 30% of S&P firms report some quantifiable AI impact but only ~2% track metrics meaningfully, and only ~2% of U.S. households were paying for AI services as of April.

The report rejects a wholesale SaaS apocalypse, framing recent repricing as a “prove-it” era where companies traded growth for profitability after ZIRP: roughly 75% of tech firms are now profitable, but only ~30% grow faster than 20%, so sector multiples have compressed except for truly fast growers. Looking forward, AI is expected to expand demand surfaces into robotics, biotech, health and autonomous driving, making this cycle materially different from prior ones and sustaining intense investment across both public and private markets.