Scott Bessent's Case for a 2026 AI Productivity Miracle

Earnings Season Reactions Mixed Despite Strong Earnings

Thus far, the reaction to earnings season has been mixed among tech stocks and rather unclear. For instance, tech giant and AI-leader Microsoft (MSFT) recently reported earnings that exceeded expectations and showed robust AI growth. Nevertheless, despite the better-than-expected earnings, MSFT shares dropped more than 10% post-earnings, reflecting Wall Street’s concern over higher spending for AI infrastructure. This year, AI hyperscalers such as Microsoft and Alphabet (GOOGL) are expected to spend a whopping $500+ billion in CAPEX to fuel their AI ambitions.

The biggest, most controversial, and hottest debated question on Wall Street is: “With hundreds of billions of dollars spent on artificial intelligence infrastructure and data centers, is the return on investment worth it?”

Bessent has a Long History of Bold & Correct Predictions

Scott Bessent, a former Wall Street legend, market veteran, and the current U.S. Treasury Secretary, has repeatedly pushed the idea that AI technology will lead to a “productivity miracle.” Bessent is no stranger to bold market predictions. The then-29-year-old Bessent is best-known for providing George Soros and Stanley Druckenmiller with the idea that the British Pound was overvalued in1992. The rest is history – Soros and Druckenmiller decided to make a massive $10 billion short bet against the British Pound, ultimately leading to Soros Management “breaking the British Pound” and resulting in a $1 billion profit for the firm.

Bessent Predicts Productivity Boom

Although Bessent is best-known for helping to facilitate “Black Wednesday”, he is a macro investing legend who has successfully navigated several market cycles, including the internet-driven tech boom of the 1990s. In the late 1990s, Bessent observed the power of a new, groundbreaking technology on the U.S. economy. The proliferation of the internet led to unprecedented, non-inflationary economic growth. According to Bessent, artificial intelligence is about to trigger another technology-driven productivity boom, and history is about to repeat itself.

The AI-Driven Productivity Boom Has Arrived

In a recent CNBC interview, Scott Bessent proclaimed:

“2025 was setting the table. 2026 is going to be the banquet for the American people. The economy’s taking off!”

The latest data shows that the S&P 500’s net margin excluding financials is at a record 13%. The massive margin expansion is proof that AI is transforming profitability for tech stocks right now.

How Can Investors Profit from the AI Productivity Boom?

While the AI revolution will benefit from the AI boom, investors should be overweight in tech as the sector will benefit disproportionately. Net income margins between tech and non-tech sectors currently have a 4% gap, the largest on record.

Unsurprisingly, smart money is pouring into several top AI names. For instance, George Soros’s Soros Fund Management added Tesla (TSLA), Taiwan Semiconductor (TSM), Broadcom (AVGO), and Nvidia (NVDA) to its holdings.

Bottom Line

The tension between today’s massive infrastructure costs and tomorrow’s potential gains has created a volatile landscape, but for the “smart money,” the direction is clear. With net margins hitting record highs, savvy investors like George Soros are loading up on AI names.

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This article originally published on Zacks Investment Research (zacks.com).

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