Interview, Fireside Chat
Al Is Becoming a Stock Picker's Market
- The AI cycle is entering its third or fourth year, shifting the market dynamic from a single thematic narrative to a stock-picker environment with greater dispersion across infrastructure software, security, AI adoption tools, agentic AI, and data infrastructure.
- Tech sector trends are projected to remain higher driven by earnings growth, valuations, and thematic tailwinds, though investors anticipate increased complexity from rate and oil market noise compared to the 2023-2024 cycle.
- Corporate productivity and revenue benefits from generative AI are expected to be quantitatively measured during the third-quarter earnings season, with a 20% plus earnings growth narrative contingent on AI-driven productivity improvements and healthy margins.
- Software companies focused on implementing or securing AI are expected to perform well, while those requiring AI for internal product improvements may face delays in market acceptance, and dispersion is anticipated to continue specifically in cybersecurity and data infrastructure.
- 10-year Treasury yields are forecast to remain above 5.25%, placing pressure on earnings to drive returns rather than excluding investors from the tech sector.
- Semiconductors are expected to be closely monitored into third-quarter earnings for signs of recovery alongside the emerging consumer AI personal assistant story, while the broader tech sector is projected to climb a "wall of worry" through 2027 and 2028.
- Consumer services and experiences are expected to offer opportunities to climb a "wall of worry" later in 2026, with re-engagement anticipated in internet services, commerce, and live events through idiosyncratic selection.
- The market currently prices a 40% probability of a rate hike at the upcoming Fed meeting, with macro data expected to influence this outcome as the market weighs rate considerations against the long-term view of AI as a decade-long mega trend.
- Return on invested capital regarding AI is expected to become increasingly critical across tech and non-tech sectors as earnings season begins, while AI deployment linearity remains uncertain due to challenges in building and activating data centers.
- Midterm elections occurring approximately 30 days away are expected to remain in the background during the immediate earnings season, which focuses on the ongoing integration story of AI over the coming months and quarters.