- Analysts expect U.S. construction output to rebound modestly in 2026 and grow about 2% annually into 2029, led by infrastructure, data centers, and manufacturing.
- Data centers are the standout demand driver, while residential and most nonresidential commercial construction remain soft under high rates and weak financing.
- Preferred 2026 picks emphasize backlog and mission-critical exposure, including Sterling Infrastructure, Dycom, Comfort Systems, Tutor Perini, Advanced Drainage, Nucor, and United Rentals.
- Key risks include tariff-driven input inflation, margin pressure (notably in rentals), project delays, and macro/interest-rate headwinds.
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Sector-Level Outlook for 2026
Construction output in the U.S. is projected to grow at an annual average rate of about 2% between 2026 and 2029, following a steep deceleration in 2025 (real growth near 1% or less). Key growth drivers include infrastructure spending (IIJA), data center construction driven by AI, housing, and manufacturing investment.
Not all segments are equally strong. Nonresidential commercial, excluding data centers, remains weak, and residential is soft under pressure from high mortgage rates and affordability constraints—but data centers represent a standout category with spending that nearly doubled YOY through September 2025 and expected to grow another ~25% in 2026.
Stock-Level Insights
Nucor (NUE) is a marquee steel play: Q4 2025 guidance projects earnings per diluted share between $1.65-$1.75; backlogs in infrastructure, energy, data center, manufacturing are materially higher than a year earlier; favourable policy and tariff regime supporting domestic steel demand. Steel mill shipments in Q3 grew 12% YOY; joist, deck, rebar fabrication grew by up to 50% YOY in some lines.
United Rentals (URI) is benefiting from infrastructure and industrial demand for equipment rental: in Q3 2025, rental revenue set a record at $3.665B, up 5.8% YOY; fleet productivity up 2%; company raised full-year guidance; acquiring H&E increases fleet size and offers ~$130 million in annualized cost synergies within two years. Valuation is elevated relative to peers, margin compression is a short-term challenge, especially in specialty rental and delivery costs.
Other top stock picks include Sterling Infrastructure, Dycom, Comfort Systems USA, Tutor Perini, Advanced Drainage—all selected by Zacks for their multi-year backlog growth, exposure to grants, infrastructure, data centers, and strong forward earnings and revenue estimates. These names are expected to outperform broadly weak construction sectors.
Strategic Implications
- Portfolio tilt toward construction firms with non-residential, infrastructure, data-center and utility exposure rather than residential or commercial speculative build-to-suit unless highly localized.
- Asset-light vs. asset-heavy: firms with strong rental businesses (e.g. United Rentals), or those with high backlog and less exposure to volatile inputs (e.g. contractors over raw material producers) may offer smoother returns.
- Policy risk and tariff risk remain central. Steel and aluminum import duties, infrastructure funding execution, tax policy around capex incentives will materially affect outcomes.
- Monitor interest rates and financing conditions—mortgage rates affect residential; capex cost for equipment firms; and discount rates for valuation and margin pressures.
Open Questions
- How steep will material input costs remain in 2026, especially steel, aluminum, lumber, and how much will tariffs or trade policy shift demand supply balance?
- To what extent will data center spending sustain its growth pace into late 2026 and early 2027 before facing supply chain, power, water or community resistance bottlenecks?
- Will the Federal Reserve’s expected rate cuts in 2026 materialize and will they meaningfully loosen financing for builders and contractors?
- What impact will labor shortages, permitting delays and project execution risk have on earnings visibility across smaller contractors?
Supporting Notes
- The U.S. construction industry output is forecasted to grow by about 2% annually over 2026-2029, with growth slowing sharply in 2025 (around 1.4%) after 6.6% in 2024.
- Data center construction spending rose from approximately $7 billion in 2022 to $32.9 billion through September 2025 and is expected to grow further in 2026, even if at a more moderated pace.
- Sterling Infrastructure reported 32% revenue growth YOY in Q3 2025 and 58% adjusted EPS growth; its backlog ended the quarter at $2.6 billion, up 64% YOY. Pipeline including unsigned awards exceeds $4 billion.
- United Rentals’ Q3 2025 rental revenue was $3.665 billion, up 5.8% YOY; adjusted EBITDA increased record high though margins compressed; company raised full-year guidance.
- Nucor expects Q4 2025 diluted EPS of $1.65-$1.75; backlogs are materially up in energy, infrastructure, data centers; new order activity in structural, sheet, bar, plate steel all rising; net sales up 145% YOY in relevant segments in Q3.
- Challenges include high tariffs on materials: E&C firms faced 25% steel/aluminum tariffs, leading to material costs rising; project abandonment up 88.2% YOY in August 2025; broader residential and commercial sectors remain weak.