Andreessen Horowitz released its State of Markets II report on September 30, 2026. General Partner David George highlights a shift in capital allocation within the technology sector, moving from software toward hardware and AI infrastructure.
Technology companies drove approximately 76% of S&P 500 earnings growth in 2026 as of late August. Major hyperscalers, including Alphabet, Amazon, Meta, and Microsoft, increased their capital expenditures to an estimated $780 billion in 2026, up from $416 billion in 2025.
Projections indicate that annual capital spending by these hyperscalers may exceed $1 trillion starting in 2027. This concentration of spending creates significant demand for semiconductor and hardware suppliers, though it also highlights a reliance on a small group of buyers.
The software sector shows high efficiency, with 75% of public companies now profitable. However, growth has slowed, as only 30% of these firms currently expand at a rate exceeding 20% annually, shifting investor focus toward cash flow rather than top-line gains.
