Key Takeaways
- • Andreessen Horowitz (a16z) released the second edition of its "State of Markets" report, which contends that tech now drives the equity market, contributing ~76% of S&P 500 earnings growth in 2026 as of late August.
- • The report identifies a rotation from "bits to atoms," with hardware, semiconductors, power, networking, and infrastructure drawing capital as the AI buildout expands demand for traditionally cyclical industries.
- • a16z argues GPU obsolescence fears are overstated, citing rising pricing for the latest chips and stable residual values for older chips such as the A100, which is pricing at or above its level at the start of the year.
- • Public software was repriced rather than destroyed: about 75% of high-growth software companies are now profitable, but only about 30% are growing 20% or faster, versus the unprofitable-growth profile of 2022.
- • AI adoption remains shallow, with nearly 30% of S&P 500 companies citing some "quantifiable impact" but only about 2% reporting tracked metrics, and roughly 2% of US households paying for an AI service as of April.
Summary
Andreessen Horowitz has published the second edition of its State of Markets report, a chart-driven review of equity and technology markets for the first two quarters of 2026. The firm's central thesis is that technology has become the defining force in capital markets. According to the report, tech is contributing approximately 76% of total S&P 500 earnings growth in 2026 as of late August, and a16z describes tech as "the everything cycle," displacing durable goods such as housing, appliances and automobiles as the dominant driver of economic activity.
Within tech, the report identifies a rotation from software to hardware, which it calls "bits to atoms." AI infrastructure spending has lifted demand for semiconductors, power and networking, industries that were historically cyclical and capital intensive. The report notes this demand has been funded largely by hyperscaler free cash flow, with growing reliance on debt. a16z also points to global infrastructure needs, rising defense spending, grid electrification, manufacturing reshoring and robotics as additional drivers of investment in physical assets.
On GPU economics, a16z challenges the view that accelerators will quickly become worthless. It argues that demand for compute continues to exceed supply, that pricing for newer chips is rising, and that older chips such as the A100 are holding value, with pricing at or above the start-of-year level. The firm cautions that the story is not finished, but says the evidence so far shows value accruing across the ecosystem rather than being displaced by newer models and hardware.
The report also characterizes AI adoption as broad but shallow. Nearly 30% of S&P 500 companies report some quantifiable AI impact, but only about 2% track a metric, and agentic deployments remain small in scale. On the consumer side, roughly 2% of US households were paying for an AI service as of April, a figure a16z says is rising but remains low.
On software, a16z says the "SaaSpocalypse" narrative overstated the damage. The public software sell-off was real but more selective, reflecting a shift since 2022 from unprofitable growth to profitability. The firm says fast-growing software companies still trade in line with historical averages, though fewer of them exist, leaving the sector broadly repriced. a16z concludes that AI will expand demand across enterprise, consumer, robotics, biotech and healthcare, and that the current cycle will differ from prior ones.
Within tech, the report identifies a rotation from software to hardware, which it calls "bits to atoms." AI infrastructure spending has lifted demand for semiconductors, power and networking, industries that were historically cyclical and capital intensive. The report notes this demand has been funded largely by hyperscaler free cash flow, with growing reliance on debt. a16z also points to global infrastructure needs, rising defense spending, grid electrification, manufacturing reshoring and robotics as additional drivers of investment in physical assets.
On GPU economics, a16z challenges the view that accelerators will quickly become worthless. It argues that demand for compute continues to exceed supply, that pricing for newer chips is rising, and that older chips such as the A100 are holding value, with pricing at or above the start-of-year level. The firm cautions that the story is not finished, but says the evidence so far shows value accruing across the ecosystem rather than being displaced by newer models and hardware.
The report also characterizes AI adoption as broad but shallow. Nearly 30% of S&P 500 companies report some quantifiable AI impact, but only about 2% track a metric, and agentic deployments remain small in scale. On the consumer side, roughly 2% of US households were paying for an AI service as of April, a figure a16z says is rising but remains low.
On software, a16z says the "SaaSpocalypse" narrative overstated the damage. The public software sell-off was real but more selective, reflecting a shift since 2022 from unprofitable growth to profitability. The firm says fast-growing software companies still trade in line with historical averages, though fewer of them exist, leaving the sector broadly repriced. a16z concludes that AI will expand demand across enterprise, consumer, robotics, biotech and healthcare, and that the current cycle will differ from prior ones.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.