Financial analysts are issuing a confident forecast for artificial intelligence (AI) equities, predicting they will continue to be a powerful force in global markets throughout 2026. This bullish outlook comes despite ongoing concerns about a potential bubble in the sector.
Sustained AI Dominance and the Search for Broader Value
Wealth management firm St James' Place expects investor fascination with AI stocks to persist next year. This optimism is underpinned by the staggering performance of major indices in 2025. The S&P 500 has climbed 15.4% year-to-date, reaching $6,774.76, while the tech-centric Nasdaq has surged 19.3% to $23,006.36, largely driven by the so-called 'Magnificent Seven' stocks like Nvidia and Amazon.
However, Justin Onuekwusi, Chief Investment Officer at St James' Place, suggests the focus will shift. "Artificial intelligence is likely to remain a dominant theme in markets as we move into 2026," he said, "but investors will increasingly want to see how those benefits spread beyond a narrow group of mega-cap technology stocks."
He identified the critical question for the coming year: whether AI's economic impact will become broad-based enough to support currently high valuations.
Emerging Markets and the AI Application Wave
Onuekwusi highlighted particularly attractive opportunities in Asian emerging markets, where many fund managers are increasing their capital allocation. He noted that emerging markets are priced more attractively than the US, and a weaker dollar could provide a significant boost.
This shift is already visible in market performance. South Korea's Kospi index, home to Samsung and SK Hynix, has rocketed 67.6% this year. China's Shanghai Composite, which includes semiconductor firm Nexchip, is also up 19.25%.
Equity strategist Carlota Estragues Lopez at St James' Place elaborated on the next phase of investment. "If profitability broadens beyond the largest technology names, we could see a rotation towards companies that use AI rather than simply build it," she stated, pointing to potential in smaller firms and international markets.
UK Equities and Bond Markets Offer Compelling Alternatives
The analysis also pinpointed the UK as a promising destination for investors in 2026. The FTSE 100's international diversification, with around three-quarters of its revenue generated overseas, is a key strength. Onuekwusi cited attractive valuations, high dividend yields, and exposure to defensive sectors like healthcare as reasons for resilience.
In fixed income, bond markets are said to offer "attractive income," especially in corporate credit where fundamentals are strong. Yet, income strategist Greg Venizelos warned of vigilance, particularly in the rapidly grown private credit market. "Stress in this area could spill over into traditional bond markets if investors are forced to raise liquidity quickly," he cautioned.
Venizelos added that bond markets will remain highly sensitive to government credibility in 2026, likely punishing fiscal imprudence or threats to central bank independence.
