The Russell 2000 Is Having Its Best Year in 23 Years. Here’s Why Small-Caps Are Winning Again

The Russell 2000 Is Having Its Best Year in 23 Years. Here’s Why Small-Caps Are Winning Again Rich Duprey Thu, July 16, 2026 at 5:47 PM GMT+2 5 min read ^RUT Quick Read The Russell 2000 has surged 20% in 2026, its best performance since 2003, as AI spending ripples beyond mega-cap tech into small caps. Unprofitable Russell 2000 companies have surged 154% since mid-2025, dwarfing profitable peers' 34% gain as investors bet on AI exposure over current earnings.

AI exposure alone doesn't guarantee success. Small caps must convert infrastructure positioning into revenue growth and profitability to justify stretched valuations. This lithium producer surpassed a $1B private valuation, joining some of America's most powerful startups.

Now you can invest in EnergyX alongside global giants like General Motors, but only through July 16. (sponsor) The stock market has spent much of the AI boom rewarding companies that can turn artificial intelligence spending into revenue, profits, and cash flow. But in 2026, investors have expanded the list of winners.

The rally has moved beyond mega-cap technology companies and into smaller companies positioned to benefit from the massive buildout of AI infrastructure. Sichon / Shutterstock. com That shift has pushed small-cap stocks into a leadership role.

The Russell 2000 index has gained 20% so far in 2026, putting it on pace for its strongest annual performance since 2003. Meanwhile, the S&P 500 has climbed 11%, and the Magnificent 7 group of mega-cap AI leaders has advanced just 4%. The surprising part is not simply that small caps are winning.

It is which small caps are winning. The Market Is Rewarding AI Exposure, Not Profits Data from HSBC shows the current small-cap rally has turned traditional investing logic on its head. Historically, profitable companies tend to outperform weaker businesses over time because earnings provide a foundation for valuation.

But since mid-2025, the opposite has happened inside the Russell 2000. According to HSBC: Russell 2000 Group Return Since Mid-2025 2026 Year-To-Date Return Companies with negative EPS +154% +45% Companies with positive EPS +34% +18% In other words, unprofitable companies have outperformed profitable peers by a wide margin. July 16 is the Final Day to Tap Into the Lithium Boom (sponsor) General Motors, POSCO, and 50,000+ everyday investors have already backed lithium producer EnergyX .

Here's why you should do the same before their July 16 investment deadline: lithium prices are up 75% this year, with demand projected to grow a staggering 5X by 2040. With tech that can recover up to 3X more lithium than traditional methods, EnergyX is preparing to unlock up to 15M+ tons. Become a private-stage EnergyX investor before the July 16 deadline .

Story Continues That does not mean investors have suddenly stopped caring about earnings. Instead, the market is placing a premium on companies that could become important suppliers, service providers, or infrastructure builders in the AI economy. To put that into context, the biggest AI beneficiaries are not limited to companies designing chips or building large language models.

The AI expansion requires data centers, power infrastructure, networking equipment, cooling systems, and specialized software. Many of those opportunities sit outside the traditional technology giants. 24/7 Wall St.

Forget the trillion-dollar giants. The real AI gold rush has moved to the infrastructure builders—and investors are ignoring losses to get in. © 24/7 Wall St.

AI Infrastructure Has Created New Small-Cap Winners The strongest-performing small-cap stocks have been technology and infrastructure companies connected to AI spending. The reason is simple: AI requires physical expansion. Companies building the tools and infrastructure needed to support rising AI workloads are seeing investor interest even when current earnings remain negative.

The market is effectively betting that today's losses represent investment ahead of future demand. Coincidentally, this resembles earlier technology cycles, where investors often valued future market opportunities before companies produced consistent profits. The difference today is the scale of spending.

The four largest cloud providers -- Microsoft ( NASDAQ:MSFT ), Amazon ( NASDAQ:AMZN ), Alphabet ( NASDAQ:GOOG ), and Meta Platforms ( NASDAQ:META ) -- continue committing hundreds of billions of dollars toward AI infrastructure. Smaller suppliers connected to that spending are benefiting from the ripple effect. The Risk Behind the Rally Granted, investors should not confuse AI exposure with automatic success.

A company losing money today still has to eventually produce profits. Rising valuations based on future expectations can create painful corrections if growth slows or AI spending does not translate into stronger financial results. The 154% gain for unprofitable Russell 2000 companies since mid-2025 shows how aggressively investors are pricing in future opportunity.

It also shows how much optimism is already reflected in some valuations. Smart investors should focus on the companies with a clear path from AI demand to revenue growth, improving margins, and eventual profitability. A business connected to AI infrastructure is not automatically an AI winner.

Key Takeaway In short, the Russell 2000's 20% gain in 2026 reflects a major change in market leadership. Small-cap stocks are benefiting as investors look beyond the Magnificent 7 and search for the next layer of AI beneficiaries. HSBC's data shows the market is currently rewarding AI exposure more than current earnings, with unprofitable small caps leading their profitable peers.

That trend can continue if AI infrastructure spending keeps expanding. But ultimately, the best long-term investments will be the small companies that can turn today's AI opportunity into tomorrow's earnings. The rally may be broadening, but profits still matter.

Meet America's Newest $1b Unicorn (Sponsor) A US startup just passed a $1 billion private valuation, joining billion-dollar private companies like OpenAI and ByteDance. Unlike those other unicorns, you can invest in EnergyX right now; but only until July 16. Over 50,000 people already have, along with global giants like General Motors and POSCO.

Here's why there's so much interest: EnergyX's patented tech can recover up to 3X more lithium than traditional methods. That's a big deal, as demand for lithium is expected to 5X current production levels by 2040. Become an early-stage EnergyX shareholder before the 7/16 investment deadline.

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