"2025 has seen a lot of AI forth - unprofitable companies enjoying insane multiples. This is coming to an end, but AI isn't going away and the earnings outlook remain positive, so we look to profitable, quality growth names. Growth a reasonable price is the mantra for 2026."
"Potentially a contrarian view on the AI bubble theme here - 2026 could see a ramp (melt-up) in AI infrastructure spending as the scramble for winner-takes-all dominance reaches a new level. Whilst this trend will continue to support the core players such as Nvidia, Broadcom, TSMC et al, I'd like to also consider the broadening out of the AI capex trade alongside the acceleration in spend."
"So, I see three key threads in 2026 regards the AI trade - acceleration, broadening and monetization. Alphabet and Meta look well placed within the Mag7 space. Alphabet has parked its tanks on OpenAI's lawn, while Meta is projecting a vision of capital discipline by reining in Metaverse spending. Both are also well placed to be first movers in showing meaningful monetization of their AI investment, through improved search/ad revenues."
Valuations in 2025 ran ahead on AI hype, with unprofitable companies enjoying extreme multiples, and a reset toward profitability and sustainable earnings is expected. 2026 emphasizes profitable, quality growth at reasonable prices while AI investment continues. Three threads define AI in 2026: acceleration of capex, broadening of AI spend beyond core infrastructure suppliers, and increasing focus on monetization. Core suppliers (Nvidia, Broadcom, TSMC) remain beneficiaries, while Mag7 firms like Alphabet and Meta are positioned to monetize AI via improved search and ad revenues. Credit markets could feel pressure from capex-funded debt issuance, though leading firms retain healthy cash flows.
Read at London Business News | Londonlovesbusiness.com
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