Investors are rewarding artificial intelligence exposure over profitability, with unprofitable Russell 2000 companies outperforming profitable peers, according to The Kobeissi Letter.

Companies with negative earnings per share in the Russell 2000 have returned 60% since April 2025, compared with a 38% gain for companies with positive earnings, the market commentator said in a post on X Sunday.

AI Trade Fuels Rally In Riskier Small Caps

The outperformance accelerated in April after investors piled into small-cap technology stocks following an Iran-U.S. ceasefire announced on April 7, according to Kobeissi.

The market commentator said investors have increasingly favored companies tied to the AI theme, even when those businesses remain unprofitable.

“Investors are rewarding AI exposure over profitability,” Kobeissi wrote.

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Russell 2000 Keeps Pace With Major Indexes

The Russell 2000’s 48% advance has outpaced the S&P 500’s 38% gain and trailed only the Nasdaq 100’s 58% surge since April 2025, according to The Kobeissi Letter.

The performance marks a sharp reversal for smaller companies, which had lagged much of the broader market’s AI-driven rally.

INDEXYTD gain1 YEAR gain
Russell 2000 Index18.80%39.72%
S&P 5009.36%24.49%
Nasdaq 10020.63%39.12%

Small Caps Catch Up To Big Tech

The rally has also been reflected in individual Russell 2000 constituents, with stocks such as Bloom Energy Corp (NYSE:BE) and Applied Optoelectronics Inc. (NASDAQ:AAOI) among the index’s top performers over the past year, significantly outperforming many established semiconductor names.

After a prolonged stretch of losses, Bloom Energy reported earnings per share of $0.43 in the first quarter of 2026.

Shares of Bloom Energy have gained more than 233% year-to-date and over 1,350% over the past year. Applied Optoelectronics was up over 300% so far this year and gained more than 600% over the past 52 weeks.

Price Action: BE shares rose 15.41% on Thursday to close at $328.91 ahead of the Juneteenth market holiday on Friday.

Benzinga edge rankings indicate BE has a Momentum score in the 99th percentile and Growth score in the 98th percentile.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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