Eyes on AI and equities

WILL the forces that powered equities over the past three years keep compounding despite stretched valuations and with artificial intelligence (AI) reshaping capital allocation?

That is the question investors will be weighing.

The outlook for the year hinges on earnings delivery, the breadth of growth and how the next phase of AI adoption feeds through to balance sheets.

Carrie King, global chief investment officer of BlackRock Fundamental Equities, strikes a forward-looking tone.

“I’m sanguine about the stock market in 2026. Earnings are based on fundamentals, and these look very strong,” she said in a recent podcast.

Concerns around valuation are key. At 22 times earnings, valuations are at the same level as the peak of the dot-com bubble.

That didn’t end well, but King remains optimistic, and feels that this time, it would be different

Her argument rests on two pillars.

“First, high price-to-earnings (PE) multiples in and of themselves do not derail bull markets,” she says.

“Second, if you look at the quality of companies today, they’re deserving of a higher multiple. Quality has never been higher,” she adds.

Crucial adjustment

“If we compare companies today to the dot-com bubble era, we think there’s an adjustment to the PE multiple to account for that higher quality,” King argues.

“We’d place the PE multiple closer to 17 times earnings, which is actually the long-term average,” she points out.

King argues that the set-up looks constructive, with consensus estimates for earnings per share (EPS) growth in the mid-teens for 2026 (an above-average growth rate), pointing to potentially very strong equity returns.

While AI remains the dominant structural theme, King expects the narrative to evolve.

“Going back to November 2022 when ChatGPT first burst onto the scene, the first order of business was to invest in what was most obvious – the semiconductor and semi cap equipment companies,” she says.

The gains since then have been substantial, raising questions about repeatability.

“Can the leading companies in these categories that have seen exponential revenue growth, margin expansion and share price appreciation repeat that magnitude of change? I don’t think that’s on deck,” she says.

Last year saw AI enthusiasm spread beyond data centres and the data centre buildout, she says, with interest spilling over into utilities, power, industrials and even building systems.

Looking ahead, the theme stays dominant, but the beneficiaries shift again.

“Will AI dominate the conversation in 2026? Yes, I think it will,” she says.

However, the emphasis moves from spending to outcomes.

King expects the beneficiaries to be a different bucket of companies, or an additional bucket of companies.

“We may go from focusing on capital expenditure (capex), spending and the revenue to cost savings, efficiency gains and the operational optimisations,” she states.

Positive earnings

That rotation feeds directly into the earnings picture.

“US companies (as represented by the S&P 500) appear poised to achieve mid-teens earnings growth again in 2026,” King says, while flagging a changing composition.

“We may see a widening gap between the Magnificent 7 companies and the other 493,” she notes.

The Magnificent 7 earnings growth rate could decelerate to about 20% in 2026, still “extremely strong and healthy”, but below the peak of 37% in 2024. Elsewhere, momentum builds.

“The other 493 could see an acceleration that takes EPS growth to the double-digit level from either declining or low single digits in the past couple of years,” she highlights.

Sectorally, King highlights cyclicals alongside technology.

“Overall, we believe strongest growth is likely to come from technology, industrials and materials companies,” she says.

Rate cuts and supply-chain re-mapping underpin that view, alongside visible demand.

The market is also seeing strong order book growth among industrials. Consumer dynamics remain uneven.

“In a K-shaped consumer economy, the high end is doing well (low end doing poorly) and driving demand for airlines, travel and hotels, where companies have very good visibility on orders/bookings,” King explains.

Financials enter the frame through capital markets activity and lending trends, while healthcare emerges quietly.

“One sleeper sector to call out is healthcare,” she says, noting the sector had been a laggard but it is now “showing signs of life”.

Diversification remains a challenge in a growth-heavy market.

Cautioning against assumptions embedded in passive strategies, King says: “If you think you’re going to buy a passive value index to diversify away from growth, you need to think again.”

“A passive index in value may not be giving you the exposure you’re expecting,” she says.

Still, valuation discipline offers ballast. “Value companies are typically trading at PE multiples below the market average,” she adds, with defensive qualities during volatility.

Outside the United States, opportunities broaden.

“Some key areas have done well (even better than the United States in 2025) and we think are poised for continued strength,” King says, pointing first to emerging markets.

Rate cuts across 125 central banks in 2025 create tailwinds, while supply-chain shifts benefit specific regions. Japan remains a core theme.

“We still like Japan,” King says, citing the transition from deflation to inflation and ongoing governance reforms.

Fears overdone

Meanwhile, Standard Chartered Bank says fears of an AI investment bubble are overdone, arguing that the risk-reward balance for the sector is quietly improving despite a jittery global backdrop.

In its latest update, the bank’s proprietary “AI bubble meter” rises from 2 in January to 2.5 in February 2026. That shift moves AI from a merely “good” to a “better” risk-reward bucket and points to potential returns of 5% to 10% over the next three to six months.

Standard Chartered’s positive outlook is underpinned by five key catalysts, most of which continue to show solid momentum.

First is AI capex, which remains a central pillar of the structural AI story, and despite concerns about aggressive buildouts. Standard Chartered expects around 40% year-on-year growth in 2026, followed by a healthy 25% compound annual growth rate between 2025 and 2030.

With fourth-quarter 2025 earnings likely to reinforce this outlook, the bank keeps its capex score unchanged at a strong four out of five.

Second, adoption is rising fast. It notes that US Census Bureau data suggest AI adoption rates in the United States now sit at roughly 15% to 20%, a sharp jump from just 3.8% in late 2023.

Third, earnings revisions for AI-linked companies continue to improve, led by semiconductors. A recent pickup in positive revisions prompts the bank to lift its earnings score from three to 3.5.

Margins, the fourth catalyst, paint a more mixed picture.

Operating margins across IT remain broadly steady, suggesting quality of growth is holding up but not accelerating. The bank therefore leaves its quality-of-growth score at 2.5.

The fifth pillar is Big Tech. Thanks to first-mover advantages and heavy investment, large technology firms continue to anchor the AI boom.

Strong capex intensity reinforces this commitment, keeping the Big Tech score at 3.5.

Risks, however, have not disappeared. Low-cost Chinese large language models, such as DeepSeek, pose a competitive threat to dominant US players, but Standard Chartered believes the market is big enough for multiple winners.

Standard Chartered notes that the regulatory and macro environment remains broadly supportive, with governments favouring enablement over restriction. As such, the bank favours an “offensively defensive” stance.

It sees upside in cyclical semiconductors while preferring the relative safety of Internet platforms and early AI adopters in healthcare. Big Tech also looks attractive in the near term, though caution is warranted for legacy models.