After more than a decade of disciplined budgeting and limited capital expenditure, oil and gas companies are opening their wallets again. The commodity supercycle of the mid-2000s left the industry overextended, with bloated deepwater projects, uneconomic oil sands expansions, and Arctic ventures that never panned out. When crude collapsed in 2014, the resulting hangover ushered in a structural shift toward capital restraint, shareholder returns, and ESG-driven caution that persisted for the better part of a decade.

That era appears to be ending. With oil prices hovering near $100 and no near-term catalyst for a meaningful pullback, producers are doing something they haven't done in years, investing aggressively in new production. And the biggest beneficiaries aren't the producers themselves, but the companies that supply the rigs, the frac crews, and the subsea equipment that make drilling possible.

Among this group, Valaris ((VAL Quick QuoteVAL - Free Report) ), ProFrac Holding Corp. ((ACDC Quick QuoteACDC - Free Report) ) andHelix Energy Solutions Group ((HLX Quick QuoteHLX - Free Report) ) stand out for strong momentum, earnings upgrades and considerable industry tailwinds.

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The Capex Cycle Is Turning and Oil Services Stocks Lead

The parallel to the technology sector is hard to ignore. After a brief discipline phase in 2022-2023 marked by layoffs and "year of efficiency" mantras, Big Tech found its permission slip in artificial intelligence and began spending at record levels. The Mag 7 are collectively guiding for over $680 billion in capex for 2026, up from roughly $400 billion in 2025, funding data centers, GPU clusters and AI infrastructure at a pace that would have been unthinkable two years ago.

To put that in perspective, total global oil and gas capital expenditure across all segments, upstream, midstream, and downstream is estimated at roughly $680 billion in 2026. Seven technology companies are now spending as much on AI infrastructure as the entire global energy industry spends to find, produce, transport, and refine the commodity that powers the physical economy. But we could see that already sizable energy capex rise, which would have a significant ripple effect on adjacent industries.

Oil and gas is getting its own version of a permission slip, not from a technological paradigm shift, but from geopolitics and supply scarcity. The Strait of Hormuz crisis, triggered by the US-Israeli strikes on Iran in late February 2026 and the subsequent regional escalation involving Gulf states has effectively removed roughly 20 million barrels per day of transit capacity from global markets. WTI crude surged from the mid-$50s at the start of the year to well above $100, and the disruption shows no signs of resolving quickly.

The response from producers has been swift. Diamondback Energy, the third-largest Permian operator, abandoned its capital discipline framework and began adding rigs and frac crews. ConocoPhillips raised capex guidance. Continental Resources reversed a planned 20% spending cut and instead increased caped 15% to 20%. These represent a potential strategic shift in how management teams are thinking about reinvestment.

Why Services and Drilling Stocks are Beating Producers

The VanEck Oil Services ETF ((OIH Quick QuoteOIH - Free Report) ) is up nearly 60% year-to-date, almost doubling the return of the Energy Select Sector SPDR Fund ((XLE Quick QuoteXLE - Free Report) ) at around 36%. The SPDR S&P Oil & Gas Exploration & Production ETF ((XOP Quick QuoteXOP - Free Report) ) sits in between at approximately 40%. This dispersion tells an important story about where the real leverage sits in a capex upcycle.

XLE is dominated by integrated majors, ExxonMobil and Chevron alone account for over 40% of the portfolio. These companies benefit from higher oil prices, but their earnings are diversified across refining, chemicals, and midstream operations. That diversification dampens their sensitivity to the upstream drilling cycle. XOP captures purer E&P exposure, but producers are price-takers and their fortunes rise and fall with the commodity itself.

Oil services companies operate differently. They get paid when producers drill, and they benefit from pricing power when capacity gets tight. SLB, Halliburton, and Baker Hughes, the core holdings of OIH, are picks-and-shovels plays on the drilling cycle. When every E&P in the Permian is scrambling to add rigs simultaneously, the companies that own those rigs and frac fleets can command premium pricing.

The Zacks Rank data confirms this dynamic from the bottom up. Scanning the Oils-Energy sector, the strongest momentum and earnings revision trends are concentrated in services and drilling names, such as Patterson-UTI, Valaris, Nabors, ProFrac, KLX Energy, and Helix Energy Solutions are all clustered near the top of the momentum rankings. The E&P companies sit in the middle tier, while the integrated majors, the names that dominate XLE, are near the bottom.

This isn't coincidental. It's the anatomy of a capex upcycle: the picks-and-shovels names lead on earnings revisions, the producers follow, and the diversified giants lag because their other business segments dilute the upstream signal.

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The Capacity Bottleneck Is Real

What makes this cycle particularly compelling for services investors is the degree to which a decade of underinvestment has constrained supply-side capacity. Halliburton's CEO noted on the Q1 earnings call that "white space" in the frac calendar is "all but gone" for Q2, with an uptick in inbound calls for spot work. Transocean booked $1.6 billion in new contracts at roughly $410,000 average day rates, the highest in over a decade.

This is the natural consequence of years of capital starvation. Rig counts were slashed, fleets were cold-stacked, and equipment was decommissioned. Rebuilding that capacity takes time and capital, which means the companies that maintained their fleets through the downturn are now in a position to dictate terms.

The offshore market is telling a similar story. Deepwater commitments in Brazil's Santos Basin, Guyana's Stabroek block, and West Africa are not short-cycle spending decisions that can be reversed if oil pulls back. These are multi-billion-dollar infrastructure projects with production timelines stretching decades. SLB's Production Systems segment grew 23% year-over-year in Q1, reflecting the durability of these long-cycle commitments.

ProFrac Holding Corp Shares Push New Highs

ProFrac is a pure-play completions company focused on hydraulic fracturing, proppant production, and related oilfield services. If there is a single company that captures the domestic land-based capex acceleration story, it's ACDC.

When US producers decide to drill more wells, they need frac crews to complete them, and ProFrac controls meaningful capacity in that market. The company has been through a difficult stretch with Q1 2026 revenue of $450 million was down meaningfully from the prior year, and the company posted a net loss of $83.5 million. But the quarter was marred by approximately $9 million in weather-related EBITDA headwinds, and importantly, the trajectory shifted meaningfully in late February as operator sentiment improved and activity levels accelerated.

CEO Ladd Wilkes made a point on the earnings call that should catch investors' attention, noting that current pricing remains at roughly 60% of where it was in 2022, indicating substantial room for price improvement as demand catches up to capacity. The company's frac calendar has continued to tighten from Q1 levels, with significant spot work converting to dedicated programs, particularly among private operators.

Despite the mixed results, the stock is up roughly 63% year-to-date and pushing new YTD highs today, reflecting the market's anticipation of the capex inflection and strong price momentum. But if pricing power continues to build as frac capacity tightens further, there is still meaningful earnings revision upside ahead. In the last 60 days, current year estimates are up 10% and next year 33%, giving the stock a Zacks Rank #2 (Buy) rating.

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Valaris Stock Breaks Out

Valaris is one of the world's largest offshore contract drillers, operating a fleet of drillships, semisubmersibles, and modern jackups across deepwater and international markets. The company represents the long-cycle, offshore side of the capex thesis, a fundamentally different dynamic than the short-cycle shale plays that dominate domestic services.

The story here begins with the post-bankruptcy transformation. Valaris emerged from Chapter 11 in 2021 with a clean balance sheet, and the current offshore upcycle has placed the company squarely in the path of rising demand. Day rates have surged to decade-plus highs as deepwater operators in Brazil, Guyana, and West Africa commit to multi-year drilling programs that cannot be easily unwound.

Q1 2026 results showed revenue of $465 million, a top-line beat versus consensus expectations of $446 million, though revenue was down 25% year-over-year due to fewer operating days and the sale of several units. The EPS miss (-$0.24 versus expectations of -$0.12) reflected merger-related integration costs and elevated war-risk insurance expenses tied to the Middle East conflict. Revenue efficiency remained strong at 98%, indicating that when rigs are working, they're performing reliably. The company ended Q1 with $578 million in cash and a contract backlog of $4.9 billion.

The transformative catalyst for Valaris is the pending all-stock merger with Transocean, announced in February 2026. The combined entity will operate a fleet of 73 rigs, including 33 ultra-deepwater drillships, nine semisubmersibles, and 31 modern jackups, with a pro forma enterprise value of approximately $17 billion and a combined backlog approaching $11 billion, making the combined group the world's largest offshore drilling contractor by fleet size.

For investors, the Transocean combination creates a dominant offshore drilling platform positioned for a multi-year deepwater capex cycle. The combined fleet will have unmatched reach across the world's most attractive offshore basins, and the scale advantages should improve cash flow and accelerate deleveraging.

Earnings estimates have risen across the board, with current quarter forecasts jumping 37% in the last month and next quarter by 22% in the same period, giving it a Zacks Rank #2 (Buy) rating. The stock also just broke out from a bullish consolidation, making it a worthy candidate for buying shares on a pullback.

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Helix Energy Solutions Group Approaches Breakout Level

Helix Energy Solutions occupies a unique niche in the offshore services value chain. While companies like Valaris drill the wells, Helix handles what comes after — well intervention, subsea robotics, and decommissioning services. It's the maintenance and lifecycle management side of offshore energy, which provides a more durable revenue stream than pure drilling activity.

The company reported Q1 2026 revenue of $288 million, beating consensus estimates by a meaningful margin ($24 million above expectations). The quarter reflected expected seasonality, winter weather impacts the North Sea and Gulf of America shelf operations, and included costs from the successful workover of the company's Thunder Hawk field. Despite a net loss of $13 million, Helix generated $59 million in free cash flow and ended the quarter with $501 million in cash and $612 million in total liquidity against just $310 million in funded debt. That's a notably strong balance sheet for a company of this size.

Full-year 2026 guidance calls for revenue of $1.2-$1.4 billion and EBITDA of $230-$290 million, with the second and third quarters expected to be the most active. CEO Owen Kratz noted that recent commodity price increases have generated improved demand for the company's services, and government actions in the North Sea have provided a regulatory catalyst for decommissioning activity.

The strategic catalyst for Helix is the recently announced all-stock merger with Hornbeck Offshore Services, expected to close in the second half of 2026. The combination creates what both companies describe as a "premier integrated offshore services company," merging Helix's well intervention assets and subsea robotics with Hornbeck's high-specification offshore support vessel fleet. The combined entity will operate under the Hornbeck Offshore Services name (ticker: HOS) and is expected to generate $75 million or more in annual revenue and cost synergies within three years. Hornbeck shareholders will own approximately 55% of the combined company, with Helix shareholders holding 45%.

What makes Helix particularly interesting in the current environment is the diversification of its end markets. Beyond traditional oil and gas, the combined company will serve defense, renewables, and scientific research applications, providing some insulation from crude price volatility that pure drillers don't have.

Helix group has seen earnings estimates rise across timeframes, earning it a Zacks Rank #2 (Buy) rating, while the stock simultaneously approaches a major breakout level.

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What Could Derail the Thesis

The bull case for oil services rests on the durability of the capex cycle. If crude prices remain elevated and producers continue to invest, services companies will continue to see strong demand and improving pricing power. But this thesis is not without risk.

The most obvious risk is a resolution to the Hormuz crisis. A ceasefire or diplomatic breakthrough that reopens the Strait could take $20-30 off crude relatively quickly. The memory of $57 oil at the start of the year is fresh, and the Dallas Fed's latest energy survey showed plenty of E&P executives still skeptical that current prices will hold long enough to justify major investment commitments. If crude falls sharply, the capex acceleration could stall as quickly as it started, and services companies would give back their outperformance faster than XLE, given the same operating leverage that drove them higher.

The counterpoint is that a resolution doesn't necessarily mean immediate normalization. Oil analysts have estimated that for every day the Strait is closed, it takes roughly a week for the market to normalize when accounting for tanker fleet dislocations, port backlogs, insurance repricing, and the restart of shut-in production. The Strait has been effectively closed for 78 days, which points to approximately 78 weeks of normalization, stretching into November 2027. Saudi Aramco CEO Amin Nasser reinforced this on his Q1 earnings call, warning that even if Hormuz opened today, it would take months to rebalance, and if the reopening is delayed further, normalization extends well into 2027.

There's also a historical precedent worth noting: OIH's 10-year return is actually negative. The oil services sector has been one of the most brutal areas of the market over the past decade, and investors who overstayed their welcome in the 2014 cycle paid dearly for it. This is a sector where timing and discipline matter enormously.

That said, the structural underinvestment argument supports elevated prices even without the geopolitical premium. The world has not built enough production capacity to meet demand growth, and the capex required to close that gap flows directly through the services companies that sit at the center of this article.

It's also worth noting that two of the three companies profiled above. These aren't defensive consolidation plays to survive a downturn. These are deals structured around the belief that the demand environment has legs and that deepwater programs, well intervention backlogs, and offshore activity levels justify building larger, more capable platforms to capture multi-year revenue streams. When management teams and boards are betting their corporate structure on a cycle, that tells you something about their confidence in its durability.

For now, the earnings revision cycle is pointing clearly in one direction, and the Zacks Rank data is confirming it across the services and drilling complex. The tech sector found its reason to spend. Oil and gas may have found its own.