S&P 500 industrials now trade at a price-to-earnings ratio above 30, a level more typical of tech and well above the sector’s long-term average near 20.
AI infrastructure is the main driver: Alphabet lifted 2026 capex guidance to $195 billion-$205 billion, while McKinsey estimates global data-center spending could approach $8 trillion by 2030.
That buildout is boosting machinery and electrical-equipment names inside XLI, with Caterpillar and GE Vernova both up more than 50% this year as utilities, substations, fiber and backup power demand rises.
Defense spending is adding a second leg of support, with Lockheed Martin and RTX up about 35% over the past year and industrials ETFs drawing roughly $23 billion of net inflows year to date.
Strategists say the sector’s appeal now rests on long-duration themes—AI backbone construction, security and resilience—though some niches such as space-focused funds have recently cooled.