Observed Signal · Sep 30, 2026 · Technical Release · Source: a16z · Impact: 3/5 · Sentiment: Positive
a16z Releases State of Markets II Report
Andreessen Horowitz (a16z) released the second edition of its State of Markets report, offering a comprehensive analysis of equity markets and technology trends in 2026. The report highlights technology's growing dominance in capital markets, contributing about 76% of S&P 500 earnings growth. A key theme is the shift from software to hardware, driven by AI infrastructure demand, with semiconductors and related industries surging. Despite heavy investment in GPUs, demand for compute still outpaces supply, and older chips like the A100 retain value. AI adoption remains immature, with only about 2% of U.S. households paying for AI services and few companies reporting quantified benefits. The report also notes a re-rating in public software, with more companies profitable but fewer growing rapidly, leading to a 'prove it' environment. Looking ahead, a16z expects AI to expand into new frontiers like robotics and biotech.
This report provides a macro view of tech markets, highlighting the shift to AI hardware and the maturation of software, which is relevant for AdTech infrastructure and investment trends.
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Key Takeaways & Evidence Grounding
- a16z released the second edition of its State of Markets report on September 30, 2026.
- Technology contributed approximately 76% of S&P 500 earnings growth in 2026.
- AI hardware demand is surging, with GPU rental rates rising despite expectations of decline.
- Only about 2% of U.S. households were paying for AI services as of April 2026.
- Approximately 75% of public software companies are profitable, but only 30% are growing over 20%.
Connected Companies & Entities
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Ontology Mapping & Concepts
Related Market Signals & Shifts
Recent verified developments and strategic activity across this market segment.
The Map of AI: The Computer Rebuilt
This market report reframes AI as a second computing revolution rather than a web extension, arguing that 2026 will see unprecedented infrastructure spending (roughly $1.04T baseline, likely higher) to rebuild the computing substrate. Two new structural layers — the "agentic harness" (production orchestration around foundation models) and "governance" (paced release of frontier capability) — are highlighted. The author asserts demand for AI compute is unconstrained while supply is physically constrained across memory (HBM4), advanced packaging, chip fabrication (TSMC), and power. Key players (hyperscalers, NVIDIA, SpaceX, Anthropic, OpenAI) and three business models (vertical, horizontal, flywheel) are mapped. The piece flags major cascades across harness, silicon, financing and power, predicts critical upcoming IPOs (SpaceX, OpenAI, Anthropic), and identifies governance and power geography as strategic choke points.
Markets Rotating from Bits to Atoms
This a16z Charts essay analyzes how the current market cycle both repeats and inverts the previous one: technology remains the cycle winner, but many formerly winning sectors (consumer, media, healthcare) have lagged while asset‑heavy sectors (energy, materials, construction, finance) and hardware have outperformed. The rotation is framed as a shift “from bits to atoms,” driven in part by AI infrastructure spending and rising interest in robotics and physical AI. Private‑market signals include record robotics VC activity (~$16B in Q1 by PitchBook) and a re‑rating of service integrators like Accenture (free‑cashflow multiple down sharply). Academic studies cited show ‘mapping’ — redesigning processes around AI — unlocks more use cases, higher revenues and lower capital intensity for startups; YC‑linked research also finds AI startups run leaner. The newsletter also examines grocery productivity trends and implications for retail and retail advertising.
Software Sell-Off and Rising AI Demand
This a16z Charts of the Week analysis reviews a selective downturn in public software valuations, arguing the market is pricing doubts about long-term durability rather than present performance. The piece shows dispersion within software equities (top quartiles outperforming while large incumbents lag), highlights sectors perceived as AI-defensible (cyber/observability and vertical SaaS), and documents growing AI demand as costs fall (including token-share shifts toward open-weight providers). It also examines labor-market signals suggesting AI adoption is correlated with increased entry-level hiring, and notes New York Governor Kathy Hochul’s one-year moratorium on data center development and its potential implications for electricity rates and regional investment.
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