NewMarkets Corporation: I See A Ceiling To Earnings Growth

2026-02-05 11:35:28 ET

Investment Thesis

Since 2026 started, we are seeing a sector rotation trade where investors are loading off from sectors that have historically outperformed, like technology and financials, and loading more into underperformers, like energy and materials. The best depiction of this theme comes from ChartkidMatt's chart that segregates sector YTD returns by deciles. 27% of companies within the materials sector were in the top decile for YTD performance, and about 23% from the energy sector. When we look at the technology sector, about 29% of companies were in the worst YTD return decile. Ironically enough, I think this rotation is largely driven by the continuation of AI investments. One thing the market is noticing is that for many years we have under-invested in the world of atoms and overly invested in the world of bits. AI technology is making us aware of this capital imbalance as more data centers need to get built to satisfy demand for inference. To increase the data center build-out, more money will have to be invested in the infrastructure that will support it. The infrastructure investment touches multiple sectors that were historically ignored, from utilities to energy and materials....

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