The S&P 500 industrials sector now trades at a forward price-to-earnings ratio above 30, surpassing its historical average of around 20, representing a 50% premium. This surge is driven by the AI boom, as data centers require construction, power supply, cooling, and grid connections. Sub-sectors tied to this expansion, including defense, space, construction, and power equipment companies, have collectively gained over 300% since May 2023. Companies like Sherwin-Williams saw their stock surge 8.3% due to demand linked to data center construction. Despite elevated valuations and rising bond yields, strong earnings from industrial firms are validating investor enthusiasm for the AI theme.
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