The month of July was turbulent for investors, thanks to growing concerns over whether hyperscalers can sustain record AI infrastructure spending while delivering attractive returns, renewed trade uncertainty and persistent geopolitical risks. Market sentiment deteriorated after Alphabet GOOGL raised its 2026 capital expenditure guidance to $195-$205 billion from $180-$190 billion, prompting investors to question whether massive AI investments can continue generating attractive returns. The announcement triggered broad profit-taking across AI infrastructure and semiconductor stocks despite another quarter of robust cloud growth and healthy corporate earnings.
Macro Backdrop Supports Growth Sectors
As August approaches, while AI-related names are under pressure, the broader macro backdrop remains constructive. The Federal Reserve left the federal funds rate unchanged at 3.50%-3.75% in July, noting that inflation remains above its long-run target even as economic activity and labor market conditions continue to show resilience. Business investment has also remained healthy, supported by sustained spending on computing equipment, software and AI infrastructure, although higher borrowing costs continue to weigh on interest-rate-sensitive areas of the economy.
Why August Is the Right Time to Reposition Portfolios
With the market entering the second half of 2026, August presents an important opportunity for investors to reassess portfolio positioning. July's pullback has reset valuations across several growth areas without materially changing their long-term fundamentals. As the earnings season progresses and investors look beyond near-term volatility, sectors supported by stable earnings growth, structural demand drivers and continued capital investment are likely to lead the market through the remainder of the year. Identifying these growth sectors, and the companies best positioned to benefit from them, could be key to generating attractive returns in the months ahead.
2 Growth Sectors to Buy for the Rest of 2026
We have identified two growth sectors, Technology and Industrial Products, and two constituent stocks, Broadcom AVGO and Eaton ETN, which are best positioned to capitalize on them.
Technology: Broadcom
Technology stands out as the first sector to watch. July's weakness reflected concerns over AI capital spending and valuations rather than deteriorating demand. Enterprise adoption of generative AI continues to accelerate, with cloud providers, semiconductor companies, networking vendors and software firms benefiting from expanding AI workloads. Continued investment in AI infrastructure by hyperscalers, despite near-term investor scrutiny, reinforces the sector's long-term growth outlook.
Among individual stocks, Broadcom is an attractive play, benefiting from strong demand for custom AI accelerators, high-speed networking chips and VMware-driven software revenues, providing multiple growth drivers through the remainder of 2026. Although this Zacks Rank #2 (Buy) stock has slipped roughly 2% month to date amid the broader AI infrastructure-led selloff, its growth outlook remains exceptionally strong. The Zacks Consensus Estimate calls for fiscal 2026 earnings growth of 72.1% on 66% revenue growth, reflecting robust demand across both its semiconductor and infrastructure software businesses.
Sales and EPS Growth Rates (Y/Y %)
Image Source: Zacks Investment Research
Industrial Products: Eaton
Industrial Products emerges as the second compelling opportunity. While AI has fueled unprecedented demand for semiconductors and cloud infrastructure, it is also driving investment in the physical equipment needed to power and operate data centers. Companies supplying electrical equipment, factory automation systems, power management solutions and advanced manufacturing technologies are poised to benefit from this multi-year capital spending cycle.
Eaton stands out as a key beneficiary as utilities and hyperscalers ramp up investments in electrical distribution, grid modernization and power management infrastructure. Although this Zacks Rank #2 stock has declined roughly 15% month to date amid the broader AI infrastructure-led selloff, its long-term fundamentals remain intact. The Zacks Consensus Estimate calls for 2026 earnings growth of 10.6% on 15.9% revenue growth, underscoring continued strength in electrification, power management and AI-driven data center demand. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sales and EPS Growth Rates (Y/Y %)
Image Source: Zacks Investment Research
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
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Eaton Corporation, PLC (ETN): Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).