Meanwhile, policy uncertainty—including trade tensions, government shutdowns and concerns about Federal Reserve independence—is magnifying doubts about the durability of US exceptionalism.
We believe this pessimism may be overstated. US companies continue to benefit from deep capital markets, innovation clusters and a corporate sector with superior profitability. These advantages help explain the relatively higher valuations in the US market.
As we see it, US equities remain an important component of global portfolios, but disciplined diversification and a highly selective approach are essential. The key for investors is to uncover companies with resilient business models, strong profitability and long-term growth potential. Active management and risk-aware portfolio construction can capture exposure to world-leading US firms while mitigating the risks.
Assessing the AI–Driven Market
Concentration and valuation risks have been fueled by enthusiasm for AI. The dominance of a small group of AI–driven mega-cap stocks has intensified the debate around active and passive investing.
AI’s rapid growth may unlock productivity gains and return potential, but transformational technology comes with considerable risks. Today, as the hyperscalers pour hundreds of billions of dollars into infrastructure capex, more questions are being asked about their future return on investment and whether we’re in an AI bubble.
Given the scale of spending, bubble fears are understandable. That said, capex in public markets is mostly being financed from free cash flow rather than debt, which should help alleviate potential stresses. However, the next phase of AI is being financed by less stable sources, including circular deals between large players and private-credit structures that could be more vulnerable.
Despite the risks, we don’t think long-term investors can stay on the sidelines. AI is making a pervasive impact across businesses and markets. As a result, we think investors should search beyond the mega-caps across the entire AI ecosystem for future winners, from early enablers to semiconductor suppliers and software firms building new architectures. Opportunities will also emerge among a broader range of companies that will become consumers and beneficiaries of AI.
Active portfolios should hold technology mega-caps based on a critical evaluation of their business models and valuations, in our view. Each stock should be appropriately weighted in line with an investing philosophy. That means a selective approach toward the heavyweight mega-caps and a sober assessment of their spending and profitability paths.
As AI broadens, we think investors should have diversified exposure across business models, industries and regions. Remember that the early winners in the dot-com boom don’t rule the web today and expand the search for companies that could become tomorrow’s leaders.
Three Investing Guidelines for 2026
How do these developments frame an equity investing plan for 2026? In an environment of sluggish macroeconomic growth, US policy uncertainty and AI–driven market dynamics, we think the following guidelines should shape a long-term strategy:
