Nasdaq leadership enters its next phase

Produced in partnership with iShares by BlackRock.

AI-led earnings growth and a historic investment cycle continue to place the Nasdaq’s largest companies at the centre of global equity markets. But for advisers, the question is increasingly not whether to participate in the theme, but how much concentration is appropriate – and where the next phase of returns may come from.

US earnings continue to provide support for the AI-led equity story. As of early August, around 75 per cent of US companies had beaten Q2 earnings expectations, with aggregate earnings beat of approximately 8 per cent. AI-linked companies accounted for more than 65 per cent of earnings growth, while non-AI companies also recorded an average 6 per cent upward earnings revision through reporting season.[1]

That strength builds on a sustained period of US market leadership. Over the five years to 31 July 2026, US equities outperformed Australian shares by around 5 per cent a year, while the more technology-heavy Nasdaq-100 delivered roughly 7 per cent more per year than the Australian market in AUD terms.[2] [3]

BlackRock expects the US earnings backdrop to remain constructive, with analysis pointing to earnings growth of around 11.6 per cent a year over the next five years – a pace historically observed in only around 15 per cent of five-year periods.[4] This remains an important support for US equities and the broader AI investment theme.

AI spending raises the hurdle

The next phase of the AI trade is likely to be judged less on headline investment and more on the returns generated from that spending.

BlackRock estimates hyperscaler capital expenditure has risen by more than 80 per cent year-on-year to approximately US$715 billion ($991 billion) in 2026.[5] Higher investment brings higher depreciation, power and financing costs before associated revenues are fully realised, increasing the earnings hurdle for companies already trading on elevated expectations.

That does not necessarily imply spending is uneconomic. BlackRock Fundamental Equities analysis suggests illustrative data-centre GPU projects can reach break-even in years three to four and generate an internal rate of return of around 21 per cent where utilisation, pricing and contract assumptions hold.[6] The key distinction for advisers is therefore likely to be between companies able to monetise AI infrastructure effectively and those simply increasing capital intensity.

The chart below illustrates this dynamic: cumulative free cash flow on an illustrative data-centre GPU project turns positive around years three to four, reinforcing why the duration and quality of future cash flows matter as much as the initial capex commitment.

AI infrastructure spending can be economically productive

Source: BlackRock Fundamental Equities Technology, May 2026. Illustrative data-centre GPU contract economics; assumptions are subject to change. For illustrative purposes only. IRR = internal rate of return, FCF = free cash flow.

Concentration is becoming a portfolio question

The Nasdaq-100 Top 30 Index concentrates exposure in the largest companies within the Nasdaq-100. As of 31 July 2026, approximately 70 per cent of the index was invested in mega-cap stocks and around 65 per cent in technology, creating meaningful exposure to hyperscalers as well as semiconductor and hardware companies supplying the AI buildout.[7]

That concentrated growth bias has recently been rewarded. From the Nasdaq-100 Top 30 Index’s inception on 22 August 2024 to 25 August 2026, the index returned more than 52 per cent, outperforming the broader Nasdaq-100 by around four percentage points[8]. While past performance is not a reliable indicator of future returns, the result illustrates how concentrating on the market’s largest leaders can amplify both upside and portfolio risk.

AI and digital infrastructure remain powerful themes, but elevated expectations can produce sharp drawdowns when markets reassess earnings, valuations, interest rates or the scale of investment required.

For advisers, that makes portfolio role and position size particularly important. Exposure to the largest Nasdaq companies can complement a diversified global allocation, but its high concentration means the exposure is better viewed as a deliberate growth tilt than a substitute for broad-market exposure.

Positioning for the next phase of US growth

For advisers, the Nasdaq Top 30 can be viewed as a higher-conviction satellite allocation for clients seeking additional exposure to US innovation and willing to accept greater volatility.

One implementation route is the iShares Nasdaq Top 30 ETF (ASX: ITEK), which tracks the Nasdaq-100 Top 30 Index. Rather than requiring advisers to select individual AI beneficiaries, it provides a single allocation across the largest Nasdaq leaders while retaining the flexibility to adjust the exposure as valuations, earnings or portfolio risk budgets change.

With US earnings still resilient and AI investment moving from model development into chips, data centres, power and real-world adoption, the structural growth opportunity remains compelling. The trade-off is greater concentration and volatility – making portfolio sizing, diversification and selectivity increasingly important as the AI cycle matures.

Lydia Vitalis, Director Investment and Portfolio Solutions, BlackRock Australia

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[1] Source: BlackRock/S&P data as of 4 August 2026.

[2] Source: BlackRock, 31 July 2026. Annualised AUD returns: S&P 500 vs S&P/ASX 200, 1 August 2021-31 July 2026. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index

[3] Source: BlackRock, 31 July 2026. Annualised AUD returns: Nasdaq-100 vs S&P/ASX 200, 1 August 2021-31 July 2026. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index

[4] Source: BlackRock/LSEG Datastream data as of 7 August 2026. Forecasts may not come to pass

[5] Source: BlackRock Fundamental Equities data as of May 2026. [1] Source BlackRock Fundamental Equities Technology, May 2026

[6] Source BlackRock Fundamental Equities Technology, May 2026

[7] Source: BlackRock data as of 31 July 2026. Index holdings are subject to change. The specific securities identified and described do not represent all of the securities purchased or sold, and no assumptions should be made that they were or will be profitable. They represent 3 of the top 10 largest holdings in the portfolio as at 31 July 2026. For illustrative purposes only. This is not a recommendation to invest in any particular financial product [1] Source: Nasdaq data as of 25 August 2026. Based on cumulative return of the Nasdaq-100 Top 30 Index versus the Nasdaq-100 Index in US dollar terms since the Nasdaq-100 Top 30 Index inception on 22 August 2024. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index

[8] Source: Nasdaq data as of 25 August 2026. Based on cumulative return of the Nasdaq-100 Top 30 Index versus the Nasdaq-100 Index in US dollar terms since the Nasdaq-100 Top 30 Index inception on 22 August 2024. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index