Growth Stocks Explained: Why Have They Been So Volatile?

Growth stocks can remain volatile despite exceptional earnings growth because higher bond yields and uncertainty over AI investment returns are reducing the value investors place on future profits.

• Long-term bond yields recently reached their highest level since 2002, while U.S. federal debt surpassed $40 trillion in mid-August and inflation remained above the Federal Reserve’s target for a fifth consecutive year.
• The Federal Reserve raised interest rates in September 2026 under Chair Kevin Warsh, after rate cuts in 2024 and 2025, increasing the relative attractiveness of bonds and the financing cost of growth companies.
• The four largest AI cloud providers and Meta reportedly doubled their debt to $350 billion over five years and issued an estimated $121 billion of bonds in 2025, raising questions about the returns on AI infrastructure spending.
• The authors do not equate current AI investment with the dot-com bubble, pointing to the earlier cloud investments of Amazon, Microsoft and Alphabet as examples of spending that initially hurt profitability but later supported growth.
• S&P 500 earnings rose by more than 50% in the 12 months to June 2026, Big Tech earnings increased by more than 100% and semiconductor earnings by nearly 140%, while analysts forecast almost 30% earnings growth for the large-cap S&P 500 in the following year.

Takeaway: Investors should look beyond short-term volatility and assess whether companies can convert AI investment and innovation into durable earnings growth, while recognizing that returns will vary and remain uncertain.