The 45-day correlation between the S&P 500 Industrial Sector and the Philadelphia Semiconductor Index has climbed to 0.75, approaching its highest level since June last year. This industrial stock rally, driven by AI capital expenditures, is pushing a group of century-old manufacturing-based companies into a trajectory highly synchronized with semiconductor stocks. When Nvidia releases its earnings next week, both technology and industrial stocks will face the same stress test.
In Wall Street’s historical narrative, industrial stocks and technology stocks have typically followed different investment scripts. However, the market since 2025 is quietly rewriting this tradition. A correlation reading of 1 indicates that the two sectors are moving in close tandem, and 0.75 means their paces are more synchronized than at any point in the past two years. Michael O’Rourke, Chief Market Strategist at JonesTrading, stated that if artificial intelligence is the sole engine driving the stock market and the economy, then any type of disruption will ultimately have a greater impact on the entire industry.
The root of this high correlation is not difficult to understand. As hyperscale cloud service providers push their 2026 capital expenditures beyond the $700 billion mark, the power management, cooling systems, and backup generators needed to build AI data centers point almost without exception to industrial giants known for their traditional manufacturing strengths.
Neil Dutta, Head of Economic Research at Renaissance Macro, pointed out that industrial stocks including Vertiv Holdings (VRT), Eaton (ETN), Caterpillar (CAT), and Cummins (CMI) all have correlations exceeding 60% with the VanEck Semiconductor ETF. Caterpillar’s Q1 2026 earnings report showed total quarterly revenue of $17.42 billion, a 22% year-over-year increase, with the biggest growth surprise coming from the Energy & Transportation segment — where sales of large generator sets and turbines for data centers surged sharply. GE Vernova (GEV) generated more orders for electrification equipment in the first quarter from the data center business than in all of 2025, with backlog orders expected to reach $200 billion by the end of 2026. Vertiv’s Q1 net sales rose 30% year-over-year, and the company raised its full-year revenue guidance to approximately $13.75 billion. Over the past 12 months, Caterpillar has risen over 170%, Vertiv over 260%, and GE Vernova over 150%.
However, the contours of risk are becoming increasingly clear. For the first time since 2021, industrial stocks in the S&P 500 have a higher forward price-to-earnings ratio than technology companies. O’Rourke provides a sobering analytical framework: there is a mismatch between the valuation premium that industrial stocks currently enjoy and the commoditized nature of their business models. Should AI capital expenditure growth slow, the commodity attributes of these industrial services will quickly become apparent, and profit margins will face pressure far exceeding that of technology companies.
In early May this year, when news broke that OpenAI had failed to meet internal revenue and new user targets, Vertiv and GE Vernova shares fell 5.4% and 2.8%, respectively, on the same day. Wolfe Research warned on May 11 that power supply constraints, raw material shortages, and regulatory bottlenecks could slow the pace of large-scale AI infrastructure construction in the second half of the year, significantly impacting the semiconductor and industrial sectors, which are highly dependent on AI investment.
An upcoming critical juncture will directly test the strength of this correlation: Nvidia is about to release its latest quarterly earnings. This has never been just a test for tech stocks. Nvidia has already provided better-than-expected guidance for Q1, with a revenue guidance range as high as $76.4 billion to $79.5 billion. According to data from TrendForce, due to supply chain tuning issues, the share of Nvidia’s new Rubin series in 2026 high-end GPU shipments has been revised downward from a previous estimate of 29% to 22%. Any production-side disruptions could transmit through capital expenditure expectations to the industrial sector. Next week, Nvidia’s numbers will serve as the arbiter of fate for those highly correlated stocks caught between traditional industry and the AI narrative.
