The story of the stock market from 2023 to 2025 can be summed up in a single statistic: the Magnificent Seven—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla—delivered earnings growth that lapped the rest of the market multiple times over. The other 493 companies in the S&P 500 were an afterthought.
But the data for 2026 tells a different story. The earnings gap between the market's elite mega-caps and the rest of corporate America is finally set to narrow, in what analysts are calling "the great earnings convergence." For investors who have been waiting for a reason to diversify beyond Big Tech, the moment may have arrived.
The Numbers Tell the Story
According to FactSet data, analysts expect the Magnificent Seven to report earnings growth of 22.7% in calendar year 2026—only slightly above the estimated 22.3% growth for 2025. The acceleration that powered these stocks to extraordinary valuations is slowing.
Meanwhile, the other 493 companies in the S&P 500 are expected to post earnings growth of 12.5% in 2026, a significant improvement from the mid-single-digit growth many posted in recent years.
The gap hasn't disappeared, but it's compressing. The Magnificent Seven's earnings premium over the rest of the market is shrinking from a chasm to a wedge.
"By 2026, the earnings gap is expected to narrow: the Mag 7 at 23% earnings growth, versus 13% for the rest. That convergence changes the opportunity set for investors."
— FactSet Earnings Insight
Why the Convergence Is Happening
Several forces are driving the narrowing of the earnings gap:
AI spending matures: The hyperscalers' massive AI capital expenditure—projected near $600 billion in 2026 from Microsoft, Alphabet, Amazon, and Meta—has driven extraordinary growth for companies like Nvidia. But as that spending base grows, the year-over-year growth rates naturally moderate. A company can't grow 100% forever.
Broader economy stabilizes: Goldman Sachs forecasts U.S. GDP growth to average 2.6% in 2026, providing a more supportive backdrop for cyclical and value-oriented companies that struggled during the high-interest-rate environment of 2023-2024.
Tech valuations create headwinds: When stocks trade at 40-50 times earnings, the bar for growth is extremely high. Any miss—or even a slight moderation in guidance—can trigger significant repricing. The rest of the market doesn't face that same pressure.
Base effects kick in: After three years of explosive growth, the Magnificent Seven's earnings comparisons get tougher. Meanwhile, many industrial, financial, and healthcare companies are lapping weaker periods and benefiting from easier year-over-year comparisons.
Sector Leaders for 2026
All eleven S&P 500 sectors are projected to report year-over-year earnings growth in 2026, with five expected to post double-digit gains:
- Information Technology — Still leading, but growth is normalizing
- Materials — Benefiting from infrastructure spending and manufacturing reshoring
- Industrials — Aerospace, defense, and equipment demand driving gains
- Communication Services — Advertising recovery and streaming profitability
- Consumer Discretionary — Resilient spending despite economic concerns
The breadth of growth across sectors represents a meaningful change from 2023-2025, when tech and communications carried nearly all the weight.
What Wall Street Is Saying
Goldman Sachs expects S&P 500 earnings per share growth to accelerate to 12.1% in 2026 from 10.5% in 2025, driven in part by improved performance from non-tech sectors. The bank projects the S&P 500 index to reach 7,600 by year-end.
Wall Street consensus estimates call for S&P 500 earnings per share of roughly $306 in 2026, up 12.5% from the current consensus estimate of $272 for 2025.
Notably, every single Wall Street forecaster tracked by Bloomberg is predicting that stocks will rally for a fourth consecutive year in 2026—the most bullish consensus in decades. While that unanimity itself is a contrarian warning sign, the underlying earnings support appears robust.
Risks to the Thesis
The earnings convergence isn't guaranteed. Several factors could derail the narrative:
AI spending pullback: If hyperscalers reduce capital expenditures or if markets lose confidence in AI returns, tech earnings could fall faster than expected while broader beneficiaries like chipmakers and software providers suffer collateral damage.
Economic surprise to the downside: Recession would hit cyclical "other 493" companies harder than defensive mega-caps with fortress balance sheets.
Tariff escalation: Trade policy uncertainty could pressure multinational industrials and consumer companies more than domestically-focused tech giants.
What This Means for Investors
For the past three years, an investor could have simply bought a market-cap-weighted S&P 500 index fund and enjoyed exposure to the Magnificent Seven's extraordinary run. Going forward, that strategy may deliver more modest results.
The earnings convergence suggests several potential portfolio adjustments:
- Consider equal-weight indices: Equal-weight S&P 500 funds give more exposure to the "other 493" without abandoning mega-caps entirely
- Look at mid-caps: Companies too small for the Magnificent Seven but too large for micro-cap risk may benefit from the broadening earnings environment
- Sector rotation: Industrials, materials, and financials have underperformed for years and offer compelling valuations if earnings growth materializes
- Don't abandon tech: The Magnificent Seven aren't collapsing—they're just growing at a slower pace. A 22% earnings growth rate is still exceptional by historical standards
The Bottom Line
The great earnings convergence of 2026 marks a potential inflection point for stock market leadership. After years of concentration in a handful of mega-cap tech names, the foundation is being laid for broader market participation.
For investors, that means opportunity—but also complexity. The days of riding a single trend may be giving way to a market that rewards selectivity and diversification. In 2026, the "other 493" finally have a story worth telling.
