When investors consider the AI growth trade, they often focus on semiconductors, hyperscalers, and software. However, the industrial sector—historically seen as cyclical and value-oriented—is experiencing a re‑rating as Wall Street recognizes that AI development requires foundational assets such as steel, turbines, power infrastructure, and aerospace engines. Aerospace and defense now represent 27.24% of the sector’s exposure, and increased defense spending is boosting the Industrials ETF (XLI).
Technically, XLI is rallying but faces a key resistance level on the weekly chart; failure to hold this ceiling would strengthen bullish case. From March 2020 to November 2021, the rally surged 126%, leading to a pullback in 2022. The current rally, beginning in October 2022, is approaching another 126% move at $187. XLI last traded at $180.50. Surpassing $187 would validate the measured move and permit a break into the $200s.
The daily chart reveals a cup and handle pattern approaching the $187 resistance. A higher XLI/S&P 500 (XLI/SPY) ratio suggests industrials could outpace the broader market, offering portfolio managers an opportunity for benchmark outperformance. Identifying the leading industrial stocks becomes essential, as broad market investing yields average returns.
Using a screen that filters U.S. companies with market caps above $1 billion, forward EPS growth over 20%, analyst revision growth over 20%, and forward revenue growth over 20%, two notable names emerge: Bloom Energy and Sterling Infrastructure (STRL).
Bloom Energy, whose on‑site solid‑oxide fuel systems power data centers, has seen a sustained breakout from consolidation. The 50‑day moving average support at $255 remains intact, and analyst expectations for EPS have risen sharply in the last year.
Sterling Infrastructure, a construction and infrastructure firm, builds the physical foundations for the AI economy—data center sites, semiconductor fabrication campuses, and power generation facilities. Its backlog grew 131% YoY to $5.15 billion (Q1 2026), and full‑year EPS guidance increased nearly 35% after the last earnings beat. With earnings above the 50‑day moving average, a breakout to new highs would be actionable with proper risk management.
— Todd Gordon, Founder of Inside Edge Capital, LLC
