AI is creating trillions in stock market value, but technology isn't the sector benefiting the most. That distinction falls to rusty old industrials.
Take Nordson, for example. The company isn't a household name. Its expertise essentially lies in dispensing liquids in industrial processes.
After Wednesday's market close, Nordson reported fiscal third-quarter earnings that were a clear beat.
Earnings per share came in at$3.25, well above Wall Street's forecast of $3.o9 and 10 cents higher than the top end of Nordson's own guidance. The midpoint of full-year guidance moved up 35 cents to $11.90. Sales rose 10% year over year and backlog, a proxy for future sales growth, rose 35%.
A big reason for the strong performance is AI. Nordson also serves the electronics industry, which is booming because of demand for the semiconductors that end up in data centers.
In midmorning trading, Nordson's shares were up about 7%. The stock is up 45% over the past 12 months, which leaves it trading for about 25 times earnings expected over the coming 12 months-up from 20 times a year ago.
"U. S. large cap industrials now carry the highest valuation of any S&P sector," wrote Nicholas Colas, the co-founder of DataTrek Research. "We're pretty sure no one had 'Industrials' on their 2026 bingo card for best S&P valuation, but here we are nonetheless."
Industrial stocks typically trade for about 20 times forward earnings estimates. Now, they trade for about 25 times. Large tech firms trade for an average of 23 times, roughly the same as they did 10 years ago.
PE ratios reflect expectations for earnings growth. Industrials in the S&P are expected to grow earnings by roughly 20% in 2027, according to FactSet-faster than in the past.
There are two big reasons for growth, Colas said: AI and aerospace and defense. Boeing and Airbus are delivering more planes to meet rising demand for air travel. And all the spending on AI data centers by a host of companies-from Alphabet to SpaceX-becomes revenue for many industrial companies.
Technology earnings are growing north of 20%, too. But investors don't seem to want to pay up for the highest growth rates. They aren't willing to believe the good times will last for memory chips.
Micron Technology, for example, is expected to grow earnings by almost 60% next year, but shares trade for just 6 times earnings.
And Nvidia is expected to grow earnings by more than 40% in 2027. It trades for less than 20 times earnings, which gives it a PEG ratio-price-to-earnings-to-growth ratio-of about 0.5 (20 divided by 40). The S&P 500 typically trades for a PEG ratio of about two.
There isn't a correct PEG ratio. It tells investors something about expected growth and how confident the market is in that growth. Nvidia certainly isn't likely to trade at 80 times earnings, which would give it a PEG of two. But shares have traded for closer to 30 times earnings over the past three years.
Industrials don't have a PEG ratio of two either, but it's north of one.
The takeaway is that industrial investors are more confident about the future than tech investors. The two groups are typically different people. Tech investors often like growth stocks. Industrial investors often prefer value.
Perhaps they should talk and compare notes about the AI boom.
Comments