AI is driving a shift in markets by helping to fuel a surge in global capital expenditure (capex), which is reshaping the economic cycle from one defined by excess savings to one characterised by capital scarcity. This investment boom – spanning data centres, semiconductors, energy systems, and digital infrastructure – is supporting stronger growth, sustaining inflationary pressures, and keeping interest rates structurally higher. At the same time, it is reinforcing equity market leadership in the US and key Asian economies that sit within the AI value chain.
Four biggest equity themes for the second half of 2026
1. AI leadership is reinforcing market dominance in the US
Equity market leadership has rotated back towards the US following the recent spike in geopolitical tensions and energy prices. In this environment, higher oil prices have disproportionately weighed on energy-importing regions, while the US has benefited from its structural exposure to AI and strong earnings momentum. As long as these exceptional conditions persist, a sustained shift towards non-US leadership remains unlikely in the near term; in a more stable geopolitical and macroeconomic environment, however, we would expect non-US equities to regain leadership.
The renewed US leadership is not solely a function of macroeconomic dynamics but is also firmly supported by underlying fundamentals. The first quarter of the year delivered the strongest earnings growth in four years, driving meaningful upgrades to forward expectations. At the same time, hyperscalers once again exceeded capex forecasts, reinforcing confidence that the AI investment cycle remains firmly on track. Importantly, the rebound in sentiment reflects easing concerns rather than excess optimism, pointing to a market driven by fundamentals.
2. Diversification beyond the US remains essential
Despite near-term US dominance, diversification remains essential as earnings dynamics begin to improve across several non-US markets.
In Europe, we are refining, rather than reducing, exposure. We are trimming exposure to core markets such as Germany and France, where earnings momentum is softening, and reallocating towards peripheral markets, including Italy and Spain. These markets offer more attractive cyclical exposure, particularly in financials and utilities, and are benefiting from stronger earnings momentum.
High-quality defensive markets such as Switzerland and Singapore remain important portfolio anchors, combining strong currencies with resilient economies. Meanwhile, we remain Overweight emerging markets (EMs), supported by improving earnings dynamics, a softer USD outlook, and continued technology-led strength in Asia and parts of Latin America.
3. Asia is a core hub of the AI value chain
Within Asia, opportunities remain broad but are becoming increasingly differentiated. Japan stands out as a key beneficiary of AI optimism, underpinned by strong earnings revisions and ongoing corporate governance reform.
In emerging Asia, China remains a key allocation despite recent underperformance, which has largely been driven by index composition and weakness in internet stocks. Beneath the surface, AI-related segments – particularly onshore – have shown strong momentum. We expect stabilising earnings and continued AI strength to support a broader recovery, alongside selective opportunities in biotechnology and electric vehicles.
Elsewhere, South Korea benefits from its central role in AI hardware, while India continues to offer structural growth, albeit with some sensitivity to energy prices.
4. With AI at the core, opportunities are expanding across sectors
AI remains the dominant market driver. The investment cycle continues to accelerate, supported by strong capex and rising demand for data centre capacity, while signs of monetisation are reinforcing earnings growth. Within AI, infrastructure – semiconductors, memory, and data centre components – continues to be the most compelling segment given strong pricing power and visibility. Software opportunities are more selective, requiring clear pathways to monetisation.
Beyond AI, our analysts have upgraded the communications sector to Overweight, reflecting both accelerating monetisation among internet platforms and the defensive characteristics of telecommunications operators with stable cash flows and attractive shareholder remuneration. For their part, financials – particularly European banks – remain attractive due to compelling valuations and strong capital returns, while healthcare offers further diversification through innovation and structural growth.
We also remain constructive on the clean energy topic. The recent energy shock has highlighted the fragility of fossil fuel supply, reinforcing the role of renewables. In Europe, renewables have helped stabilise power prices, while in the US, rising electricity demand – partly driven by data centres – is accelerating the transition. With solar, wind, and batteries gaining share in the energy mix thanks to cost competitiveness, the current environment provides additional tailwinds for the investment theme.
Overall, equities are supported by strong earnings and powerful structural drivers, but selectivity across regions, sectors, and themes will be critical to capture the next phase of the equity cycle.
Frequently asked questions
Given that Chinese equities have been underperforming, why do you continue to overweight the segment?
China’s underperformance this year largely reflects index composition rather than a lack of opportunity. Benchmark indices remain heavily skewed towards old-economy sectors and legacy internet names, while many of the strongest AI performers are listed on mainland growth markets and are therefore underrepresented.
Looking ahead, we expect stabilising earnings in internet platforms, alongside continued strength in AI-related segments, to support a catch-up in performance. We therefore remain Overweight China and believe that maintaining a balanced allocation to both onshore and offshore markets is key, as they provide complementary exposure to China’s evolving growth drivers.
Are we seeing signs of an AI bubble?
We do not see evidence of a broad-based AI bubble. While valuations in parts of the ecosystem are elevated, market performance has been driven primarily by strong, sustained earnings growth rather than the expansion of valuation multiples. Data centre demand continues to outpace supply, and there are clear signs of improving monetisation. Additionally, unlike in previous cycles, today’s AI leaders are highly profitable and cash-generative. That said, market concentration – particularly in the US – has increased, and some segments leave little room for disappointment. Selectivity and diversification are therefore important.
Where are the likely winners within AI?
Hardware remains the primary beneficiary of growth in cloud computing and AI, spanning compute, memory, networking, power, and cooling systems. These AI infrastructure companies are supported by sustained hyperscaler investment and should benefit regardless of which AI applications ultimately succeed.
When it comes to software, bottom‑up stock selection is crucial, as these companies are not yet able to reap the benefits of AI on a broad basis. Large, established platforms embedded in client ecosystems are best placed to monetise AI over time, while less established players may struggle to keep pace.
Do you still stand by the case for diversifying away from US equities?
In the near term, US outperformance is likely to persist, supported by its dominance in AI and current macroeconomic conditions. However, the case for diversification remains compelling over the medium term. As geopolitical tensions ease and the macroeconomic backdrop stabilises, we expect a return to the earlier leadership of non-US equities. In addition, a more multipolar global environment, a softer USD outlook, and improving opportunities across Asia and parts of Europe all support broader portfolio exposure. These regions offer a combination of growth potential, attractive valuations, and meaningful diversification benefits.
As we head into the second half of 2026, the message is simple: stay invested, but remain open-minded and flexible.