OBBBA and Your Portfolio: Four Key Shifts

The One Big Beautiful Bill Act (OBBBA) funnels resources to places where lawmakers hope to steer growth: small business support, physical infrastructure, national security, and certain clean energy projects. How could this impact your portfolio? Here, our Investment Strategy Team identifies four places where incentives have shifted, who will benefit, and where challenges may appear. Throughout, we discuss that though legislation can tilt the playing field, lasting investment success still depends on fundamentals – supply and demand, growth, profitability, and continuous innovation.  

1. Small Cap Tailwinds

Under OBBBA, the cap on how much interest companies can deduct from their taxes will return to 30% of a broader profit measure called EBITDA (earnings before interest, taxes, depreciation, and amortization). This reverses the stricter limit, based on EBIT (earnings before interest & taxes), that’s been in place since 2022.

Small-cap companies stand to gain more from this change because a bigger share of their profits comes from depreciation and amortization, and they tend to carry more debt. That means they could deduct more interest, pay less tax, and possibly see higher valuations.

What It Could Mean for Investors:

This doesn’t guarantee small caps will beat large caps across the board, but it does tilt the odds in their favor. In the past, similar tax changes have given certain small-cap groups—especially those with higher debt —a noticeable after-tax advantage. Still, stronger balance sheets and profitable growth will likely separate winners from weaker peers.  

Historical Parallel: after the 2017 Tax Cuts and Jobs Act lowered the corporate tax rate from 35% to 21%, the Russell 2000 (small-cap index) outperformed the S&P 500 by roughly 7% in the following three months. However, the advantage faded within a year, as fundamentals reasserted themselves – profitable small caps held gains, while unprofitable ones lagged large cap peers despite the tax relief.  

2. Growth for Industrials, Automation & AI  

OBBBA will make it easier and cheaper for companies to invest in their operations. It permanently restores the ability for companies to deduct the full cost of machinery and equipment right away, and for projects started between 2025 and 2029, it temporarily extends that benefit to certain buildings and structures. This change lowers the after-tax cost of big investments, freeing up cash for growth.

What It Could Mean for Investors:

Industries that spend heavily on equipment—such as manufacturing, industrial production, and data centers—stand to benefit the most, along with mid-sized companies upgrading facilities and fast-growing firms expanding on limited budgets. If the economy stays strong, sectors like industrials, automation, and AI infrastructure could see gains, especially for companies with U.S.-based supply chains that also qualify for domestic production incentives. Execution and innovation, however, will remain the decisive factors.

3. Clean Energy Credits: Shorter Deadlines, Stricter Rules

OBBBA shortens the window for clean energy projects to qualify for major tax credits. To get the Investment Tax Credit (ITC) or Production Tax Credit (PTC), projects must start construction by July 4, 2026, or be operating by the end of 2027. Hydrogen projects lose credit eligibility if they haven’t started by January 1, 2026, and certain electric vehicle incentives begin phasing out in 2025–2026.

The bill also expands restrictions on projects connected to “Foreign Entities of Concern” (mainly Chinese companies), making them ineligible for credits. To earn bonus credits, solar and wind projects must now meet higher U.S. content requirements (40–55%). This creates pressure on developers to speed up construction and adjust supply chains.  

What It Could Mean for Investors:

While these changes could be a near-term challenge for solar and wind projects—and may temporarily squeeze returns—it could benefit U.S.-based clean tech manufacturing in areas like batteries, geothermal, and nuclear, which retain full credit eligibility through 2036. Technology costs and adoption rates, however, will ultimately determine which players succeed.  

Historical Parallel: Following the 2009 American Recovery and Reinvestment Act, which provided over $90 billion in clean energy support, solar stocks surged in the short term. Yet by 2012, several high-profile companies, including Solyndra, had collapsed due to global oversupply and falling panel prices. Meanwhile, firms that could innovate and scale – like First Solar – endured and grew market share.  

4. Defense and Fossil Fuels: Government Spending Shifts

OBBBA puts $25 billion into the Golden Dome missile defense system and adds funding for shipbuilding, nuclear deterrence, modernizing air traffic control, and expanding border operations.

On the energy side, it boosts support for fossil fuels by opening more oil and gas lease sales (both on land and in the Gulf of Mexico), lowering royalty rates for producers, delaying a planned methane emissions fee until 2035, streamlining approvals for CO₂ and hydrogen pipelines, and allowing companies to immediately deduct certain drilling costs.

What It Could Mean for Investors: 

Defense contractors such as Palantir Technologies and RTX Corp—both involved in missile and defense systems—could benefit from the new spending, and their stock prices have already reflected optimism this year. In energy, the bill favors oil and gas producers, potentially making well-run midstream and upstream companies more attractive to income-focused investors, especially if energy prices stay steady or rise. Still, valuations, commodity cycles, and operational execution will matter far more than legislative boosts alone.

The Big Picture

OBBBA is designed to spur growth through tax breaks and investment incentives, but it also increases government spending without raising additional revenue. That means more borrowing, which could push up long-term interest rates—especially if inflation expectations rise or the government chooses to issue more short-term debt.

What It Could Mean for Investors: 

If borrowing costs climb, it could pressure stocks that rely on expectations of high future growth. On the other hand, if the government focuses on short-term debt, it might push investors toward riskier assets like stocks, similar to the effects of past stimulus programs. In either scenario, interest rate swings could increase, so it’s worth paying attention to how sensitive both bonds and certain types of stocks are to rate changes.

In Closing

While these policy changes are significant and will create ripple effects for investors, they only tilt the playing field. True investment success still relies on fundamentals such as: demand growth, profitability, cost discipline, and continuous innovation.  

Our Investment Strategy Team continues to track market developments closely, applying a disciplined, objective, model-driven approach to guide decisions.

To learn more OBBBA, you can read our first post on its financial planning implications here. For tailored guidance—or any questions about your personal situation, we encourage you to reach out. Clients can contact their relationship manager, and all others may reach out with the “Contact Us” button.  

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Balentine LLC (“Balentine”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Balentine’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.   The opinions expressed are those of the Balentine Investment Team. The opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational use only and should not be considered investment advice specific to your financial situation.