Across houses, 2026 is framed as a high‑valuation, AI‑dominated but gradually broadening equity market. US and global indices trade ~20–23x forward earnings—≈30–40% above long‑run averages for ACWI and S&P 500 Barclays p.14–15; UBS p.29], with the top 7–10 US mega‑caps now ~35–40% of the S&P 500 and c.25% of global equity value JPM p.10; Goldman p.7, p.17–18]. Most see current pricing as rich but not a 2000‑style bubble, provided AI capex converts to earnings Goldman p.7; BofA p.6–8; UBS p.29; KKR p.86]. Core return engines are EPS growth (often low‑ to mid‑teens for S&P 500 in 2025–26 MS p.1; JPM p.6; UBS p.26]) rather than further multiple expansion. The dominant narrative: maintain exposure to AI and quality US large caps, but reduce reliance on narrow mega‑cap leadership and rotate toward cheaper regions (Europe, Japan, EM) and lagging segments (small/mid caps, value, "AI enablers/adopters") as breadth improves. Barclays is most cautious (equities cut to neutral, US mega‑caps "unsustainably" expensive Barclays p.14–15]), while Morgan Stanley and UBS are most bullish on both valuations and breadth holding together MS p.1, p.16–18; UBS p.26–29].
US / global headline: Broad agreement that S&P 500 ~22–23x NTM P/E and ACWI ~20x are expensive vs history Barclays p.14–15; JPM p.10; KKR p.58–59; UBS p.29; BofA p.13]. KKR's implied 10‑yr EPS growth of ~16% embedded in prices is "lofty" vs 11% long‑run KKR p.5–6], while Stifel's CAPE on operating EPS is "nearly 3σ" rich and ERP in the 92nd percentile Stifel p.11, p.39]. UBS and HSBC counter that elevated multiples are partly explained by index mix (tech weight now >28–36% of ACWI UBS p.14, p.29]) and sustained double‑digit EPS growth (e.g., S&P 500 +11% 2025, +10–13% 2026 JPM p.6; UBS p.26; HSBC p.19–20]).
Common implementation: rely on EPS/margin delivery; assume little or modest multiple compression, not fresh expansion.
Relative valuation across regions/styles: Europe and EM trade at large discounts even adjusting for sector mix—e.g., EM at ~40% forward P/E discount to US Goldman p.20; BofA p.13–14], Eurozone on 15.2x forward P/E, ~22% discount to global peers UBS p.28]. Quality factor premia are near cycle lows (~17% for MSCI AC Quality vs ACWI KKR p.6–7]), and small‑cap value appears close to fair value vs richly priced US large‑cap growth BofA p.9, p.13–14; Goldman p.5, p.10]. This drives a relative valuation consensus: cheap non‑US, small caps, and value vs expensive US mega‑cap growth.
Diagnosis: Multiple reports quantify the degree of concentration: Mag 7 at ~35% of S&P 500 and driving most earnings growth JPM p.6–7, p.10; JPAM p.6], top 10 US stocks ≈25% of global market cap Goldman p.17–18], IT+Comm at 36% of ACWI UBS p.14]. BlackRock's principal‑component analysis shows a single driver explaining ~11–13% of S&P daily return variance post‑style‑adjustment, i.e., factor concentration BlackRock p.8]. Barclays notes half of S&P 500 constituents are still ≥20% below prior peaks despite index highs Barclays p.13].
Implications: index‑level outcomes are highly sensitive to a few mega‑caps' earnings and AI monetisation decisions.
Breadth outlook: There is a shared three‑stage AI framework: builders (hyperscalers/chipmakers) → enablers (infrastructure, power, grids) → adopters (sector users) BlackRock p.4, p.6; Goldman p.7–8; JPM p.7; KKR p.5; MS p.14–15; UBS p.17–18; TRowe p.8]. All see the next leg favouring enablers/adopters—industrials, utilities, financials, healthcare—plus AI‑levered SMIDs. Differences are about speed and magnitude: MS and UBS model broad, early‑cycle style rotations with small caps and cyclicals outperforming MS p.2, p.25–27; UBS p.26–28]; KKR, JPM, Barclays, Stifel expect more selective broadening, warning that repeated attempts at convergence have disappointed KKR p.57–58; JPM p.6–7; Barclays p.17; Stifel p.16, p.23–24].
United States: Seen as expensive but still the earnings and AI centre. MS and UBS explicitly project S&P 500 to ~7,800–7,700 by end‑2026 on EPS of ~$317–305 and ~22x P/E MS p.1, p.20; UBS p.26–28]. JPM and HSBC see double‑digit EPS growth in 2026 (11–13% overall; Mag 7 ~20%; "Forgotten 493" ~11–12% JPM p.6–7; HSBC p.19]). Barclays, KKR, Stifel emphasise that implied growth is stretching and starting valuations compress long‑term return potential, favouring a tilt away from cap‑weighted US beta toward more idiosyncratic, high‑quality, or non‑US plays Barclays p.14–15; KKR p.78; Stifel p.1–3]. JPAM goes further, arguing more tech value creation is migrating to private markets, so public indices are both concentrated and incomplete proxies for innovation JPAM p.58–59].
Europe/UK: Universally seen as cheaper with improving, but still uneven, earnings. Goldman and KKR stress a "deep discount" vs US even after sector/growth adjustments Goldman p.19; KKR p.59–60]. UBS upgrades Eurozone to Attractive on 7% EPS growth in 2026 and 18% in 2027, plus sizeable defence and infrastructure capex UBS p.27–28]. HSBC and JPM are more cautious, noting that 2025 performance was multiple‑expansion‑driven with weak EPS, leaving less valuation "cushion" and political/geopolitical risks (France, tariffs) HSBC p.4, p.20; JPM p.8, p.18]. Net: broad agreement on value, but split on speed/visibility of earnings catch‑up.
Japan & EM: High conviction regional diversifiers. Japan: corporate reform, rising buybacks, and nominal growth underpin outperformance despite above‑historic multiples Goldman p.7; KKR p.22, p.78–79; UBS p.28; HSBC p.9–10; JPM p.8]. EM: cheap vs US (~40% P/E discount) with strong tech/AI supply‑chain exposure (China, Korea, Taiwan, India) and supportive FX/rate trends Goldman p.7–8; KKR p.60, p.104–105; UBS p.32; HSBC p.5–6; BofA p.2, p.10; JPM p.8]. Risks centre on China policy, tariffs, and macro volatility.
Quality and income: Favoured across houses as a way to stay invested despite high valuations and correlation—high ROE, low leverage, strong FCF, and shareholder yield (dividends/buybacks) Barclays p.15–16; Goldman p.18–19; HSBC p.15–17; KKR p.6–7; BofA p.9; UBS p.26–27].
Small/mid caps and value: MS, Goldman, UBS, BofA, T. Rowe, JPM expect SMIDs to benefit from rate cuts, pent‑up operating leverage, and M&A, with valuations much lower than large‑cap growth (small‑cap P/Es in ~17th percentile vs S&P in 90th MS p.27]; US small‑value ETFs at ~13.6x vs US large‑cap market at 23.3x BofA p.13–14]) and supportive earnings trends Goldman p.5; JPM p.8; TRowe p.15; MS p.25–27; BofA p.9]. Stifel and KKR agree on medium‑term value/small‑cap tailwinds but argue near‑term macro and valuation set‑ups don't support an "easy handoff" from growth to cyclicals Stifel p.23–24; KKR p.5–8, p.59–60].
Alternatives and private markets: KKR, JPAM and Brookfield explicitly position private equity, infra, and real assets as complementary or even superior sources of growth/AI exposure vs expensive public mega‑caps KKR p.3, p.75–79; JPAM p.3, p.58–59; Brookfield p.5–7, p.17–21].
Across frameworks, 2026 is a high‑valuation, AI‑centric but gradually broadening equity environment: staying invested in US mega‑caps and AI remains necessary, yet relying on cap‑weighted benchmarks alone concentrates risk in a cohort that is ~35–40% of the S&P 500 and ~25% of global equity value JPM p.8–10; Goldman p.17–18]. The investable takeaway is to keep core exposure to quality AI leaders while deliberately adding cheaper breadth—Europe, Japan, EM, and high‑quality SMIDs—so that if earnings do broaden as many expect (e.g., S&P 493 EPS ~11–12% growth in 2026 alongside Mag‑7 ~20% JPM p.6–7; HSBC p.19–20]), portfolios participate in upside without being hostage to a handful of AI builders.
| Source | Content |
|---|---|
| Brookfield Outlook | n.a. |
| Barclays Outlook | Global equities are “richly valued,” with MSCI ACWI at 20x forward earnings, about 32% above its 20‑year average, and the S&P 500 at 23x, roughly 40% above its long‑term average; over the past three years, ~20% annualised total returns were driven mainly by P/E expansion (+14% annualised) versus ~5% profit growth, implying limited room for further multiple expansion and greater reliance on earnings and cash‑flow durability [p.14–15]. Europe (+13% vs its 20‑year average), the UK (+6%) and EM (+20%) also trade above their own histories but at “deep historical discounts” versus the US [p.14–15]. |
| Goldman Outlook | Equity and bond valuations sit at elevated historical percentiles across assets, with NTM earnings yields and credit spreads mostly in the 75–90th percentile range since 2005, and broad indices described as expensive versus history even though recent US equity returns have been driven more by earnings than by pure multiple expansion; small-cap valuations are flagged as relatively attractive given the earnings outlook [p.10]. |
| Blackrock Outlook | U.S. equity valuations, measured by the Shiller P/E, are described as the most expensive since the dot‑com and 1929 bubbles, framing current levels as rich versus history yet not an immediate trigger to de‑risk because past bubbles ran for some time before bursting [p.3]. Valuation risk is assessed dynamically through whether AI‑driven earnings and productivity gains can ultimately justify today’s multiples, rather than via static de‑rating calls [p.3][p.5][p.6]. |
| Goldman Outlook - Summary | Regional comments highlight Europe as trading at a “deep discount to US stocks” even after adjusting for sector and growth, Japanese equities as “above historical averages” yet supported by earnings and reforms, and EM as at a ~40% one-year forward P/E discount to US equities, below its long-term average [p.5,7]. Emphasis is on relative rather than absolute valuations, with valuation gaps framed as key return drivers across regions and sectors [p.2,5,7]. |
| HSBC Outlook | US and IT sector equity valuations are “less stretched” once their high ROE is considered, with US P/E ratios around long‑term averages and below prior‑cycle peaks, and most 2025 US returns coming from earnings growth rather than multiple expansion [p.4, p.19]. In Europe, returns have been led by multiple expansion rather than earnings, leaving the outlook “less exciting” despite no clear valuation bubble [p.4, p.20]. EMs, especially Asia, trade at a valuation discount that, combined with upgrades and improved fundamentals, is attracting flows [p.5]. |
| JPAM Outlook | U.S. large-cap equities trade at elevated valuations, with the S&P 500 forward P/E at about 23x as 2025 ends and global equity markets described as “expensive compared with the past decade,” especially versus relatively affordable private CRE [p.6][p.10]. Healthcare equities, by contrast, trade at “near‑trough” multiples despite strong fundamentals, creating a notable disconnect between valuations and earnings/innovation/M&A support [p.60]. |
| JPM Outlook | U.S. equities are “undoubtedly rich” with the S&P 500 forward P/E “touching 23X,” and the U.S. trades at a 34% valuation premium to international equities versus a 19% long‑run average, but rich valuations are framed as fundamentally supported by four consecutive quarters of double‑digit earnings growth, resilient profits despite high rates, and a structural shift toward higher‑growth sectors [pp.1, 6, 8, 10]. Valuations, earnings, and AI “look bubbly but are underpinned by solid fundamentals,” including strong free cash flow in tech and monetized AI demand [pp.1, 6–7]. [p.?] |
| MS - 2026 US Equities Outlook - The Rolling Recovery Is Here | S&P 500 trades around 22.3x NTM P/E with a 12‑month target at 22x on 2027 EPS of $356, implying only modest multiple compression but a still‑elevated valuation versus history, supported by above‑median EPS growth and Fed easing regimes that historically see P/E expansion 91% of the time [p.1, p.5, p.8, p.20]. On multiple and risk‑premium metrics, today’s market screens much cheaper than 1999–2000: top‑10 weights’ median forward P/E is 31x vs 44x in 1999, S&P 500 margin‑adjusted P/E is ~35% below tech‑bubble highs, FCF yield is ~3.5% vs 1.2% in 2000, the equity risk premium is ~300 bps higher, and the S&P trades at a 70% discount to its 1999 peak in gold terms [p.15–19]. |
| KKR 2026 Outlook | U.S. equities trade on an S&P 500 NTM P/E of ~22.5x (ex‑top‑12 AI ~19.3x; top‑12 ~29x), with sector‑ and quality‑adjusted valuations at about the 73rd percentile (~14% above median), implying expensive but not bubble‑level pricing; implied 10‑yr EPS growth of ~16% vs an 11% long‑term median and ~8% in most of the prior decade underscores elevated optimism, though still below 2000 extremes [p.5–6, p.58–59]. Historical relationships between high starting CAPE/strong trailing returns and much lower forward 5‑ to 10‑yr returns support a view of compressed prospective equity returns, while valuation spreads between cheapest and priciest quintiles are moderate vs 2000/2021, reinforcing the “not a bubble” characterization [p.9, p.13, p.55–56, p.86, p.141–142]. |
| RIC 2026 BAML | Median equity ETF forward P/E of 16.9x (~0.9σ above its 15.1x average) implies equity valuations are generally elevated but not at extreme bubble levels, with many US sectors, growth and tech in particular, trading at or above historical norms [p.13–14]. S&P 500 Tech at 34x forward P/E vs 68x in the dot‑com era and Nvidia at 25x 2026E P/E near its own long‑term average indicate stretched but still earnings‑anchored multiples compared with prior bubbles [p.6, p.8]. |
| Stifel Outlook | S&P 500 is described as expensive, with the equity risk premium in about the 92nd percentile of the past 65 years and a strongly right‑skewed distribution implying rare, stretched valuations and “fat tail” downside risk to P/E multiples [p.1, p.11]. The cyclically adjusted CAPE on operating EPS is nearly 3 standard deviations over-valued versus history, and long-run data show recent real returns have been heavily driven by multiple expansion that is unlikely to persist, especially given high fiscal deficits and money growth that historically pressure P/E ratios lower over time [p.39–40]. |
| TRowe Outlook | Valuations across major asset classes, including equities, are described as “extended,” with U.S. equity valuations “elevated but…supported by strong and improving fundamentals,” while Europe, Japan, non‑U.S. value, and ex‑China EM are characterized as having “reasonable” or “attractive” valuations and being “less stretched” than developed markets overall [p.9][p.14–15][p.17]. |
| UBS Year Ahead | Global equities trade at elevated valuations versus history, with MSCI ACWI “over 19 times” 12‑month forward earnings, about 30% above its 20‑year average, and the S&P 500 at 23x forward earnings near the top of its historical range, while the Nasdaq is at 30x trailing P/E, well below its dotcom peak [p.28–29]. Outside the US, valuations are more moderate: Eurozone equities trade at 15.2x forward P/E, a 10% premium to their long‑run average but at a 22% discount to global peers [p.28–29]. Valuations are characterized as elevated but not at bubble peaks, implying scope for continued gains if earnings and liquidity remain supportive [p.28–29]. |
| Source | Content |
|---|---|
| Brookfield Outlook | n.a. |
| Barclays Outlook | Market leadership is “unusually” narrow, with the Magnificent 7 contributing >20% of global equity gains (~4% of 20%) and >40% of S&P 500 returns (~7% of 17%) in 2025 YTD, leaving indices highly dependent on a few AI‑related mega caps and raising concentration risk as a key vulnerability for 2026 [p.13, p.15, p.40–43]. This concentration is rewarding “concentration over diversification,” a dynamic that “rarely proves sustainable,” especially given stretched valuations and uncertain AI monetisation [p.13, p.15, p.40–43]. |
| Goldman Outlook | US equity concentration is extraordinary, with the top 10 US companies at ~40% of S&P 500 market cap, nearly $25tn in value representing ~25% of global equities, at least 9 US stocks above $1tn, and the top 10 S&P names generating ~30% of index earnings; AI‑related mega‑cap tech valuations are largely supported by strong earnings and balance sheets rather than a pure bubble, but highly vulnerable to earnings disappointment [p.7][p.17][p.18]. |
| Blackrock Outlook | Equity leadership is highly concentrated in a handful of U.S. mega‑cap “AI builders,” with a single common driver explaining roughly 11–13% of S&P 500 return variance after style controls, indicating unusually low breadth [p.3][p.8]. This concentration is portrayed as the market expression of real‑economy concentration in AI mega forces, and is considered sustainable for now as long as AI capex and earnings hold up, though it amplifies both upside and downside if the AI theme falters [p.3][p.6][p.8]. |
| Goldman Outlook - Summary | US equity concentration is described as extreme, with the biggest 10 US stocks (mostly tech) making up nearly 25% of the global equity market (~$25 trillion) and the top 10 S&P 500 names accounting for ~40% of index market cap and ~30% of earnings [p.3]. Strong earnings power and massive AI-related capex (hyperscalers at ~27% of S&P 500 capex) provide support for sustained leadership, but growing “points of debate” around AI’s impact and returns are expected to drive greater dispersion within mega-caps rather than uniform gains [p.3–4,10]. |
| HSBC Outlook | Concentration risk in US “Mega Tech”/Mag 7 is explicitly flagged, with many investors only slightly underweight the US due to strong earnings growth and using FX overlays instead of slashing exposure [p.4–5]. AI‑linked leaders are not seen as a bubble because most US equity returns have come from earnings growth, and Mag 7 EPS is projected to grow 16% in 2026 versus 12% for the “Forgotten 493,” suggesting high but earnings‑backed leadership rather than purely multiple‑driven excess [p.4, p.19]. |
| JPAM Outlook | U.S. equity leadership is highly concentrated, with the “Magnificent 7” large-cap names accounting for about 35% of the S&P 500, and this narrow, AI-driven dominance combined with high valuations is characterized as a key risk for public equity investors [p.6]. Concentration in these AI leaders is used as a rationale for seeking AI exposure in smaller/mid-market and private opportunities rather than relying on cap-weighted U.S. benchmarks [p.6][p.58–59]. |
| JPM Outlook | U.S. equities have a record “over 40% concentration in 10 companies (and in the AI theme),” with the Magnificent 7 comprising 35% of the S&P 500 and delivering a disproportionate share of earnings and capex growth, making concentration risk elevated [pp.7–8, 10]. Mega‑cap AI leaders are characterized as profitable, cash‑rich, and largely self‑funding the AI capex cycle—suggesting the setup looks more like a structural transition than a classic bubble—yet their size means any AI or earnings misstep would have outsized index impact and leaves markets vulnerable given limited visibility into ultimate winners [pp.4, 7–8]. [p.?] |
| MS - 2026 US Equities Outlook - The Rolling Recovery Is Here | Concentration in the top‑10 S&P names/“Mag 7” is viewed as high but not bubble‑like, with median forward P/E for the top‑10 at 31x (vs 44x in 1999) and operating margins of 51% vs 29% in 1999, backed by broad FCF positivity (92% of S&P 1500 FCF‑positive) and robust earnings power [p.15–17]. Mega‑caps are framed more as a quality/inflation‑hedge factor than an unsustainable bubble, and a broadening of leadership is expected to occur without a forced de‑rating of these mega‑caps [p.13–18]. |
| KKR 2026 Outlook | Market leadership and capex are highly concentrated in a small group of mega‑cap AI “hyperscalers” and the Mag‑7, whose combined capex+R&D is projected at ~$690bn in 2025 and ~$875bn in 2026, roughly 29% of all U.S. tech‑related equipment and IP investment, with capex reaching 60–70% of operating cash flow by 4Q26e, raising leverage and capital‑structure risks reminiscent (though less extreme) than prior telecom/shale cycles [p.4–6]. Despite this concentration, valuations across the broader market are also elevated (S&P ex‑top‑12 still ~19.3x), suggesting the issue is not only narrow leadership but system‑wide optimism, and sustainability hinges on AI capex monetization and productivity gains, with an explicit AI‑capex bust framed as a key bear‑case risk for the S&P 500 [p.26, p.57–59]. |
| RIC 2026 BAML | Mag 7 / AI leaders are central to index behavior but not yet in bubble territory, with the Bubble Risk Indicator for S&P 500, Nasdaq 100 and Mag 7 peaking near 0.7 in mid‑2025 and now around 0.25, well below the 0.8+ readings seen before historical crashes [p.5]. Hyperscalers’ capex is high (≈60% of OCF) and increasingly debt‑funded ($121bn IG issuance in 2025, another ~$100bn expected in 2026), keeping concentration risk elevated but still supported by strong ROIC and earnings vs 1999–2000 style decoupling [p.6–8]. |
| Stifel Outlook | A handful of monopolistic Tech/AI-linked industries (Semis, Software, Media/GOOG/META, Tech Hardware/AAPL, Retail/AMZN, Autos/TSLA) generate extraordinary economic profit (high ROIC–WACC) and trade at EV/Invested Capital multiples up to ~4–5x the S&P 500, creating extreme index concentration and keeping S&P 500 ROE unusually high [p.1, p.6, p.17]. Sustainability is questioned as AI becomes more capital intensive, hyperscaler FCF erodes and credit spreads widen, which is already compressing forward P/Es and leaves Cyclical Growth/Big Tech with “no margin for error in 2026” [p.6, p.12–13, p.17]. |
| TRowe Outlook | Concentration risk in U.S. large‑cap technology and the “Magnificent Seven” is flagged as a concern, with their enormous market capitalization such that even modest shifts into other segments (e.g., small‑caps) could significantly boost those areas [p.15][p.17]. Sustainability is implicitly questioned via references to elevated valuations, speculative activity around AI, and the risk that any earnings “hiccups” in these leaders could be punished more harshly than normal [p.6–7][p.17]. |
| UBS Year Ahead | Market leadership is highly concentrated in US tech and AI beneficiaries: IT and communication services now comprise 36% of MSCI AC World and the top nine US tech stocks generated 72% of the Russell 3000’s growth over the past 12 months [p.14]. The Magnificent 7 are expected to remain major drivers, contributing around half of S&P 500 earnings growth in 2026, so sustainability of the rally is closely tied to continued AI‑related profit delivery, with AI disappointment flagged as a key risk [p.26, p.47]. |
| Source | Content |
|---|---|
| Brookfield Outlook | n.a. |
| Barclays Outlook | 2026 is framed as a transition from AI‑momentum and narrow leadership in 2025 to a more fundamentals‑driven and diversified market, with breadth expected to broaden across regions, sectors and styles as valuations cap further multiple expansion and earnings delivery becomes more important [p.13, p.16–17]. Historical patterns and the current disconnect between cyclicals’ outperformance and macro/credit signals support scope for a rotation toward defensives and quality, reinforcing the view that current narrow breadth is unlikely to persist [p.15–17]. |
| Goldman Outlook | Market leadership is expected to broaden heading into 2026, with homogenous performance among the mega‑caps giving way to greater dispersion and the AI theme spreading from a narrow group of leaders to enablers and emerging innovators, especially in small/mid caps; historical patterns around easing cycles and M&A, plus underestimated AI capex, underpin an expectation for improved breadth rather than continued ultra‑narrow leadership [p.8][p.18][p.19][p.21]. |
| Blackrock Outlook | Current AI gains are concentrated in tech and hyperscalers, but productivity and revenue benefits are expected to spread across the economy over time, creating a later phase of winners among adopters and bottleneck‑resolvers such as energy, power systems and infrastructure [p.4][p.6][p.9][p.13]. The present phase remains narrow and the broadening will be a gradual, active‑stock‑picking story rather than a simple beta rotation [p.3][p.6][p.8]. |
| Goldman Outlook - Summary | A highly concentrated starting point in US mega-caps is expected to evolve into broader leadership through 2026 via small and mid caps (helped by rate cuts and accelerating earnings) and non-US markets such as Europe, Japan, and EM, which are framed as under-owned/undervalued relative to fundamentals [p.2,3–5,7–8]. Within US mega-caps, homogenous performance is anticipated to shift toward greater dispersion as AI economics differentiate winners, further enhancing stock-level breadth even if headline concentration remains high [p.4,10]. |
| HSBC Outlook | Market leadership is expected to broaden gradually, with S&P 500 EPS in 2026 projected at +13% overall, +16% for Mag 7 and a solid +12% for the “Forgotten 493,” indicating wider earnings breadth beyond mega‑caps [p.19]. Strategy explicitly aims to “look across and beyond AI,” avoid single‑stock/sector/style concentration, and broaden participation via overweights in Utilities, Industrials, Financials and Asia over 2026–27 as EPS growth is forecast in double digits for most regions [p.3, p.5, p.7, p.20]. |
| JPAM Outlook | Concentration risk in public equities is highlighted and investors are nudged toward more diversified, idiosyncratic exposures (private markets, biotech, healthcare, Japan) that are less tied to narrow mega-cap AI leadership [p.3][p.6][p.48–52][p.59–61]. Structural trends—fewer listed companies and more value creation in private markets—are framed as multi-year forces that reduce public market breadth [p.53][p.58–59]. |
| JPM Outlook | Market breadth is “trending in the right direction,” with the Mag 7 contributing less to 2025 S&P 500 performance and analysts forecasting “near‑parity” in earnings growth between the Mag 7 and the rest of the index, but the hoped‑for broadening of earnings “has thus far failed to materialize” as 2026 Mag 7 EPS estimates have been revised up and S&P 493 down [pp.6–7, 12]. AI’s impact is expected to broaden over a multi‑year horizon from innovators (tech) to enablers (industrials, utilities) and adopters (financials, health care), and internationally leadership is already broadening as ex‑U.S. regions deliver strong performance and earnings growth roughly in line with the U.S. [pp.7–8]. [p.?] |
| MS - 2026 US Equities Outlook - The Rolling Recovery Is Here | Market breadth is expected to broaden materially over the 2025–26 “early‑cycle” upturn, with small caps and cyclicals outperforming large caps and defensives as earnings revisions breadth and median EPS growth for lagging segments inflect higher (e.g., small‑cap median EPS from –21% to +10%, Russell 3000 median EPS +8% in 3Q25) [p.1–2, p.6–8, p.24–27]. A rotation toward cyclicals, Financials, Industrials, Consumer Discretionary goods, and Healthcare, plus AI “adopters” across sectors, is expected to drive broader leadership through at least 2026 without requiring a collapse in mega‑cap performance [p.2, p.8, p.25–28, p.33–36, p.47–55]. |
| KKR 2026 Outlook | Some broadening of earnings and performance beyond Mag‑7/Tech is expected into 2026 as consensus EPS forecasts show growth for “others” converging toward tech, but this is paired with “healthy” skepticism given past “false dawns” and an ongoing “Winners Take Most” productivity dynamic favoring large‑cap leaders [p.4–5, p.8, p.57–58, p.99]. Large‑cap productivity and margins have already pulled sharply away from small caps (S&P 500 real revenue per worker up ~5.5% since ChatGPT vs deterioration in S&P 600), so breadth improvement is viewed as gradual and incomplete rather than a full rotation away from mega‑cap dominance [p.4–5, p.20–21, p.57–59]. |
| RIC 2026 BAML | Market leadership is expected to broaden over the 1–2 year horizon toward satellite trades such as international small/mid‑cap value, US small/mid caps, Japan and EM income, supported by cheaper valuations, higher forecast EPS growth for small caps (19% vs 13% for S&P 500) and significant current underweights (~60% underweight US small caps) [p.2, p.9–10]. Breadth expansion is framed as a shift away from the narrow “tech & Treasuries” regime, with non‑mega‑cap and non‑US segments offering better risk‑reward as AI/US large‑cap upside becomes more constrained [p.1, p.9–10, p.17]. |
| Stifel Outlook | Current breadth is narrow, with Cyclical Growth ex‑Autos (largely AI/Big Tech) outperforming the S&P 500 by ~21.3% YTD 2025 while Defensive Growth and Defensive Value lag by ~11–12 percentage points, a divergence seen as inconsistent with weakening Core GDP and PMIs [p.16, p.18]. Leadership is not expected to hand off smoothly to broad cyclicals at today’s Growth/Value and P/E levels; instead, historical analogues suggest a higher risk of bear-market-style mean reversion, with 2026 likely characterized by hedging Cyclical Growth exposure using Defensives rather than a clean broadening of breadth [p.18–20, p.23–24]. |
| TRowe Outlook | Equity markets are described as already broadening, with leadership moving beyond the original AI mega‑caps toward “physical AI” infrastructure and cyclicals, and in 2026 broader market participation is anticipated across sectors, regions, and cap sizes [p.2][p.8]. Small‑caps are expected to be the biggest beneficiaries of performance broadening away from U.S. mega‑cap technology stocks, helped by fiscal stimulus, Fed cuts, and improved M&A/IPO activity [p.15][p.17]. |
| UBS Year Ahead | Market breadth is expected to improve over the next 12–24 months, with contributions broadening from US mega‑cap AI leaders to include US health care, utilities, and banks, as well as Eurozone, Japan, China (including China tech), Asia ex‑Japan, and EM equities [p.26–28, p.31–32]. Non‑US regions are forecast to deliver solid EPS growth and are positioned with more moderate valuations, suggesting a more balanced contribution to global equity returns by end‑2026 [p.27–28, p.31–32]. |
| Source | Content |
|---|---|
| Brookfield Outlook | n.a. |
| Barclays Outlook | US equities are the most expensive and most concentrated, prompting a recommendation to diversify away from US mega caps toward cheaper regions such as the UK (one of its widest discounts to global peers in two decades, with high dividend yields), Europe (attractive relative valuations with improving large‑cap earnings momentum) and selective EM (inexpensive versus DM and likely to benefit from a softer dollar and AI supply chains) [p.14–15, p.45–46]. At the multi‑asset level, equities have been shifted from overweight to neutral, with reduced DM exposure and EM restored to strategic allocation to broaden regional diversification [p.45–46]. |
| Goldman Outlook | European equities trade at a “deep discount” to US equities even after adjusting for sector mix and growth, with further rerating potential in banks and value sectors tied to capex and re‑industrialisation [p.19]; Japan is slightly rich vs its own history but justified by wage growth and governance reforms, with under‑researched breadth creating quant alpha potential [p.20]; EM equities trade at ~40% 1Y forward P/E discount to the US, below long‑term average, with positive tilts toward India and AI‑linked chip producers in China/Korea/Taiwan, while China is cheap but policy‑risk‑laden [p.20][p.22]. |
| Blackrock Outlook | Regional tilts favor U.S. and Japan—both overweight—backed by strong AI‑linked earnings and macro support in the U.S., and robust nominal growth plus governance reforms in Japan [p.6][p.15][p.16]. Europe and China/EM are tactically neutral, with preference for specific sectors in Europe (financials, utilities, healthcare) and selective AI/automation/energy‑transition plays plus a structural EM overweight via India, while moving away from U.S./AI or into equal‑weight indices is framed as a sizable active underweight to the main return driver rather than neutral diversification [p.8][p.14][p.15][p.16]. |
| Goldman Outlook - Summary | Europe trades at a “deep discount” to US equities and European banks remain below long-term valuation averages, supporting selective adding, especially in banks and high-quality energy-transition/sustainability leaders [p.5]. Japan’s valuations are above historical averages but seen as justified by earnings growth and governance reforms, while EM equities trade at a ~40% one-year forward P/E discount to the US with scope for this gap to narrow given strong earnings, especially in India and tech/AI-oriented EMs (China, Taiwan, Korea) [p.7–8]. US is implicitly more fully valued relative to these regions, but still favored for mega-cap AI leaders [p.3–5,7–8]. |
| HSBC Outlook | US equities remain overweight but trimmed, with valuations deemed acceptable given high ROE and earnings‑driven returns [p.4–5, p.19]. Europe is less favoured as returns have relied on multiple expansion and weaker earnings, with specific caution on France, some support for Italy/Spain, and a neutral stance on the UK [p.4–5, p.20]. Asia/EM is a key overweight, with Mainland China, Hong Kong, Singapore, South Korea and Japan preferred due to innovation, AI leverage, governance reforms, rising ROE (Asia ex‑Japan ROE projected 10.8% in 2024 to 13% in 2027e) and valuation discounts; India is neutral [p.3, p.5–6, p.9–11]. |
| JPAM Outlook | Global equities overall are labeled expensive vs the past decade, while Japanese equities “remain attractively valued” even after a rally, supported by governance reform and improved M&A dynamics that make Japan a favored hunting ground for activist/event-driven equity strategies [p.10][p.48–49]. Healthcare is also seen as unusually cheap relative to fundamentals on a sector basis, alongside a contrast between expensive U.S. large caps and relatively better value in Japan and select sectors [p.6][p.60–61]. |
| JPM Outlook | U.S. equities trade at a 34% valuation premium to international markets versus a 19% long‑run average and represent over 65% of global equity benchmarks, while the dollar is still estimated as ~10% overvalued, all of which supports a tilt toward increasing ex‑U.S. exposure [p.8]. Europe and Japan are favored for value‑style exposures and fiscal‑investment themes (defense, infrastructure), while Asian EM and “Offshore China, Korea, Taiwan and Japan” are preferred for technology/AI themes; international earnings (ex‑China) are now keeping pace with the U.S. at about 10% expected growth, and buybacks and dividend yields (roughly twice those of the U.S.) are rising, yet many investors remain underweight these regions and are urged to rebalance [pp.2, 8–9, 12–13]. |
| MS - 2026 US Equities Outlook - The Rolling Recovery Is Here | US equities are preferred over Europe, Japan and EM, justified by stronger 2025–27 EPS CAGR (S&P 500 14% vs 12% TOPIX, 11% EM, 5% Europe), higher ROE (21% vs 14% Europe/EM, 10% Japan) and higher net margins (14% vs 11% Europe, 13% EM, 8% Japan), with US relative performance versus ACWI ex‑US in a long‑term uptrend [p.20–21]. The profit/earnings gap drives a structural OW US vs ex‑US tilt [p.20–21]. |
| KKR 2026 Outlook | U.S. equities are characterized as high‑quality but expensive, with expected 5‑yr local returns of ~5.0% vs materially higher prospective returns for Europe (~8.0%) and Japan (~8.8%), where PEG ratios are more attractive and modest P/E expansion plus healthy dividends are assumed [p.12–13, p.22, p.39–41, p.59–60, p.76–78]. Europe and Japan are highlighted as offering superior growth‑adjusted value and FX tailwinds for USD‑based investors, while EM (especially Asian reform and tech‑heavy markets) is seen as entering an up‑cycle on improving ROEs and rate cuts; overall regional allocation tilts toward Europe, Japan, and EM relative to the U.S. [p.17–18, p.22–23, p.51–53, p.59–60, p.60, p.78–79, p.104–105]. |
| RIC 2026 BAML | US equities are seen as modest‑upside and relatively expensive (S&P 500 3.7% 2026 return, <1% real for US 60/40), while LatAm equities and EM local assets screen cheaper with higher expected returns (e.g., Brazil 15.5%, LatAm equities P/E 10.13x at −0.43σ) [p.2, p.14]. Europe is underweighted with a negative 2026 return forecast (Stoxx 600 −2%, target 565) versus bullish tilts to Japan (TOPIX P/E 16.16x, +1.76σ but supported by reform and 9% EPS growth) and selected EM (Brazil, India ~12–14% EPS growth, EM high‑dividend and HY income trades), reflecting a preference for international and EM over US/Eurozone core [p.2, p.10, p.14–17, p.19]. |
| Stifel Outlook | Medium‑term style and regional discussion highlights tailwinds for Non‑U.S. equities versus the U.S. from an expected multi‑year dollar depreciation (~–2% DXY CAGR to early 2030s) and a rising commodity cycle, which historically coincide with better returns for MSCI World ex‑U.S. versus the S&P 500 [p.31–32, p.40–42]. |
| TRowe Outlook | U.S. equities are seen as elevated but fundamentally supported, while non‑U.S. markets—Europe, Japan, and ex‑China EM—are viewed as relatively more attractive on valuation and policy grounds, with Europe having “reasonable” valuations, Japan standing out for “attractive valuations” and governance reforms, and ex‑China EM cited for less‑stretched valuations than developed markets [p.9][p.15][p.17]. The outlook favors non‑U.S. equities, especially value and cyclicals, expecting them to catch up to the U.S. in AI‑related sectors, and treats China mainly as a tactical, selective opportunity given structural and geopolitical headwinds [p.9][p.15]. |
| UBS Year Ahead | US equities are most expensive (S&P 500 at 23x forward earnings), while Eurozone trades at 15.2x (10% above its own average but at a 22% discount to global peers) and has been upgraded to Attractive on improving earnings prospects [p.28–29]. Japan is favored on improving ROE and relatively lower valuations; EM and Asia ex‑Japan are seen as offering double‑digit or high‑single‑digit returns into 2026, aided by discounted valuations and large tech/AI exposure [p.28, p.32]. Dec‑2026 targets imply modest upside for Euro Stoxx 50, Topix, FTSE 100, SMI, MSCI China, MSCI EM, and MSCI AC World, with a recommendation that at least half of equity allocations remain in the US and at least 20% in other global markets [p.28, p.30, p.60]. |
| Source | Content |
|---|---|
| Brookfield Outlook | n.a. |
| Barclays Outlook | Quality is the preferred style—defined by strong balance sheets, high ROE and stable earnings—viewed as “due a rebound” and well placed to regain leadership as volatility rises and fundamentals regain focus after the AI‑led, mega‑cap rally [p.15]. High total shareholder yield (dividends + buybacks), especially in financials and energy, and a potential rotation from stretched cyclicals toward defensives (healthcare, staples, utilities) as growth slows and bond yields fall are core tilts in this concentrated market [p.15–17]. |
| Goldman Outlook | Large‑cap quality growth—especially AI‑exposed firms with high margins, strong balance sheets, and durable end markets—remains favored, with a clear preference to diversify into small and mid caps where valuations are attractive and AI “picks and shovels,” rate‑cut beneficiaries, and M&A targets can broaden leadership, albeit requiring active, often quantitative, selection to manage meme‑stock and idiosyncratic risks [p.7][p.8][p.10][p.18][p.19][p.21]. |
| Blackrock Outlook | Large‑cap tech “AI builders” (hyperscalers, cloud and platform companies) are the core equity beneficiaries and remain favored, with investors warned that equal‑weighted U.S. exposure—up just 3% versus 11% for cap‑weighted S&P year‑to‑date—implies a substantial underweight to this leadership [p.3][p.6][p.8]. The next phase of the theme is expected to favor infrastructure‑linked segments (energy, grids, power systems, listed/private infrastructure) that sit at AI and energy‑transition bottlenecks and currently trade at valuation discounts [p.9][p.13]. |
| Goldman Outlook - Summary | Large caps, especially US mega-cap AI leaders with high gross margins, “fortress balance sheets,” and durable end markets, are favored, but incremental opportunity is highlighted in small and mid caps benefiting from rate cuts, accelerating earnings, and dealmaking tailwinds [p.3–5]. Across the cap spectrum, preferences lean toward quality and secular growth “enablers” or “picks and shovels” of the AI boom, including secular-growth small caps (e.g., semiconductors, aerospace and defense) where above-trend growth could drive outsized multiple expansion [p.4–5,10]. Quantitative and long/short strategies are promoted to exploit growing dispersion and mispricings in small caps, Europe, and EM while managing benchmark concentration risk [p.5,9]. |
| HSBC Outlook | Portfolio construction focuses on avoiding single‑stock, sector and style concentration, maintaining overweight positions in large‑cap Technology and Communication Services while adding Utilities (AI‑driven power demand), Industrials and Financials for value and style diversification [p.5, p.7, p.17–18]. In Asia, a “barbell” approach balances exposure to AI/tech leaders with high‑dividend, quality value stocks (e.g., Singapore and Hong Kong with 2025e dividend yields of ~4.0% and ~3.8% vs 1.8% global) [p.6, p.10]. |
| JPAM Outlook | High concentration and rich valuations in U.S. mega-caps steer preference toward small- and mid-market AI-related opportunities, especially in private markets, and toward specialist, stock-picking strategies in sectors with high dispersion such as biotech and healthcare rather than broad index beta [p.6][p.50][p.58–61]. Event-driven and activist strategies in Japan, and more generally alpha-oriented approaches targeting governance and corporate change, are favored over passive exposure to concentrated, cap-weighted U.S. large-cap indices [p.48–49]. |
| JPM Outlook | Portfolio construction guidance emphasizes balancing growth and value and increasing non‑U.S. and non‑mega‑cap exposure, as investors are currently overweight U.S. growth and underweight value and ex‑U.S. equities [pp.12–13]. Within styles and sectors, profitable tech remains preferred within growth, financials are favored for resilient earnings and catalysts like deregulation and curve steepening, value sectors such as energy and staples are seen as challenged, and value‑tilted exposures are encouraged in Europe and Japan while tech/AI themes are prioritized in Asian EM and selected developed Asian markets [pp.2, 7–9, 12]. [p.?] |
| MS - 2026 US Equities Outlook - The Rolling Recovery Is Here | Allocation tilts favor small caps over large caps, cyclicals over defensives, and “lower‑quality” high operating‑leverage names alongside high‑quality growth, reflecting an early‑cycle, “run it hot” regime where easing policy and improving pricing power boost laggards’ earnings [p.1–2, p.8, p.14–15, p.25–28]. Sectorally, Financials, Industrials, Consumer Discretionary goods, and Healthcare are Overweight; Staples and Real Estate are Underweight; Tech and Comm Services are held at neutral, while AI‑beneficiary “adopters” with strong pricing power and selected large‑cap tech/software remain favored within growth [p.28–30, p.33–37, p.42–45, p.47–55, p.62]. |
| KKR 2026 Outlook | Portfolio construction favors “quality and scale” globally—high ROE, stable earnings, low leverage, capital‑light and service‑oriented businesses—over broad beta or merely “cheap” cyclicals, with MSCI AC World Quality trading at only a ~17% NTM P/E premium to the broad index, near multi‑year lows and thus attractive for “High Grading” [p.3, p.6–8, p.10–11, p.15–16, p.20–21]. Large‑cap leaders in productivity and AI adoption are preferred to structurally impaired or over‑levered segments (certain staples, roll‑ups, speculative data centers), with an explicit tilt to alpha (stock selection, Private Markets) rather than simple U.S. equity beta and a recognition that international and private exposures can rival or outperform U.S. large and small caps in the coming cycle [p.3, p.7–8, p.12, p.22–26, p.75–79]. |
| RIC 2026 BAML | Preferred equity exposures tilt toward international small‑cap value, US small/mid caps, and quality, as these segments offer similar or better long‑run returns than US large growth (~15% annualized for global small value vs US large growth) with lower P/E (12x vs 27x), better EPS growth (7.6%), and lower correlation to the current leaders [p.9]. Factor‑wise, quality has delivered 15.8% annualized, beating growth and value, and quality strategies with no Mag7 exposure have outperformed the S&P 500 by 9ppt annually since 2000, supporting a rotation away from expensive US large‑cap growth toward cheaper value/quality and SMID segments [p.9, p.13–14]. |
| Stifel Outlook | Near term, Cyclical Growth (Big Tech/AI) remains the core driver but is seen as crowded and vulnerable, so the preferred stance for 2026 is to hedge over-owned AI-driven Cyclical Growth with Defensives (both Growth and Value sectors such as Healthcare, Staples, gold, Waste, Software) [p.1, p.14–16, p.18–20]. Over the medium term, persistent deficits, a weaker dollar and a rising commodity cycle are expected to favor Value over Growth, Small Cap over Large Cap, and Non‑U.S. over U.S. equities, though 2026 specifically is framed as roughly flat Value vs Growth performance [p.19, p.31–32, p.40–42]. |
| TRowe Outlook | Small‑caps are preferred globally, with U.S. small‑caps expected to benefit most from broadening performance, Fed cuts, deregulation, fiscal stimulus, and stronger M&A/IPO activity, while U.S. large‑caps carry concerns around elevated valuations and concentration risk [p.15][p.17]. Style-wise, there is a neutral stance between U.S. growth and value, but a clear preference for non‑U.S. value—especially financials and other cyclicals tied to steeper yield curves and improving loan demand—given relatively attractive valuations and supportive monetary/fiscal backdrops [p.15][p.17]. |
| UBS Year Ahead | Preference tilts toward structural growth exposures such as AI, power and resources, and longevity, with guidance to allocate 10–30% of equity portfolios to these themes, which include large‑cap tech leaders but also diversify across AI enabling, intelligence, and application layers [p.17–21]. Within sectors, US health care, utilities, and banks are highlighted as attractive complements to mega‑cap tech, offering defensive growth, income, and cyclical recovery; styles are implicitly growth‑ and quality‑biased, supplemented by cyclicals like banks rather than a pure small‑cap or value tilt [p.26–27]. |
| Source | Content |
|---|---|
| Brookfield Outlook | n.a. |
| Barclays Outlook | Hyperscaler AI capex is extremely high and needs rapid revenue and profit realisation within short GPU asset lives (~three years) to justify current AI leaders’ valuations, making the equity outlook highly sensitive to the speed and scale of AI monetisation [p.41–43]. The AI theme is expected to evolve from benefiting mainly infrastructure “builders” (current mega caps) to a broader set of “adopters” across real‑economy sectors, so whether current leaders can “grow into” their valuations will determine if the present boom avoids becoming a bubble and whether market leadership broadens [p.17, p.40–43]. |
| Goldman Outlook | Surging and repeatedly under‑estimated AI capex by the top hyperscalers—now roughly 27% of S&P 500 capex and subject to continual upward revisions—along with strong earnings growth is used to justify elevated valuations of AI leaders and to argue for durability and broadening of the AI trade, though low visibility on ultimate ROI and the risk that capex fails to translate into sufficient earnings growth are highlighted as central vulnerabilities for both equity and credit investors [p.8][p.15][p.18][p.27]. |
| Blackrock Outlook | Massive AI capex ambitions of $5–8 trillion through 2030, largely by U.S. hyperscalers, are compared against broker forecasts of $1.6 trillion in additional annual revenue and an estimated $1.7–2.5 trillion needed to earn 9–12% IRRs, anchoring a view that aggregate AI revenues must exceed current forecasts to justify investment and valuations [p.4][p.6]. Macro AI‑driven productivity boosting growth by 1.5 percentage points could expand economy‑wide revenues by $1.1 trillion annually, while tech’s revenue share rising from 25% to 35% implies a $400 billion sectoral boost, together supporting an overweight to U.S. equities and the AI theme even if not all individual firms earn their cost of capital [p.5][p.6]. |
| Goldman Outlook - Summary | Massive AI-related capex by hyperscalers—about 27% of total S&P 500 capex—along with strong earnings power is cited as the core fundamental justification for elevated valuations and continued gains in US mega-cap leaders [p.3–4]. AI is framed as a key driver of both revenue growth and competitive moats for these firms, while also creating opportunities for “picks and shovels” enablers and EM tech/AI leaders; questions about whether AI enhances or cannibalizes core businesses and whether returns on AI investment are sufficient are flagged as the main catalysts for future dispersion in valuations [p.4–5,8,10]. |
| HSBC Outlook | AI‑related capex and productivity gains are central to justifying high valuations, with AI expected to add 1–2.5% to labour productivity over the next 10 years, supporting margins and earnings growth rather than pure multiple expansion [p.4]. US/IT valuations are seen as reasonable as most returns have come from earnings growth, not P/E expansion, and 2026 S&P 500 EPS is forecast to grow 13% overall, led by AI‑enabled Mag 7 at 16%, while AI infrastructure themes (data centres, utilities, re‑industrialisation) underpin sector overweights and multi‑year earnings expectations [p.3–4, p.7, p.19]. |
| JPAM Outlook | AI enthusiasm and disruptive potential are acknowledged as key drivers of mega-cap valuations and concentration, with a focus on the risk of paying high public-market multiples for these AI leaders and on the shift of AI-related value creation to private markets rather than public benchmarks [p.6][p.58–59]. The outlook highlights large, long-term tech/AI value creation (e.g., USD50 trillion of expected sector value over 10 years as IT spend triples) as a structural driver [p.59]. |
| JPM Outlook | AI‑related capex, currently around 1.2–1.3% of GDP and heavily financed by large cloud and tech firms, translates into monetized demand for AI hardware, cloud services, and software, supporting strong earnings growth—Mag 7 EPS is projected to grow about 20% in 2026 versus 11% for the rest of the S&P 500—thereby helping justify elevated valuations in AI‑linked equities [pp.3, 6–7]. Tech’s free cash flow margin near 20%, more than double late‑1990s levels, and the fact that AI capex is largely self‑funded make the current AI cycle look more sustainable than the dot‑com bubble, though markets remain vulnerable to slower AI adoption, power or materials constraints, and hardware cyclicality given the theme’s high concentration and its role in driving 36% of S&P earnings and 56% of capex growth [pp.4, 7]. [p.?] |
| MS - 2026 US Equities Outlook - The Rolling Recovery Is Here | AI is a key pillar of the valuation and earnings narrative, with AI‑driven efficiency gains assumed to add 40 bps to S&P 500 net margins in 2026 and 60 bps in 2027 versus prior estimates, contributing to the above‑consensus EPS path underpinning high but sustainable multiples [p.14–15, p.19–21]. AI benefits are expected to broaden beyond infrastructure “enablers” to “adopters” across many industries—24% of adopters and 15% of S&P 500 already cite quantifiable AI benefits—supporting both mega‑cap valuations and the case for AI‑levered sectors (Industrials, Healthcare, software, select cyclicals) as key winners in the rolling recovery [p.14–15, p.47–55]. |
| KKR 2026 Outlook | Elevated valuations and implied 10‑yr EPS growth (~16% CAGR) are underpinned by expectations that massive AI‑related capex by the Mag‑7 and hyperscalers—rising to $690bn in 2025 and $875bn in 2026 and consuming 60–70% of operating cash flow—will drive a sustained productivity and margin boom, supporting double‑digit S&P EPS growth in 2026–27 rather than further multiple expansion [p.4–6, p.55–57]. A significant portion of AI‑capex‑driven optimism is already “pulled forward,” value may accrue more to AI adopters than enablers, and an AI capex bust or slower‑than‑expected monetization is a central downside risk that could trigger earnings disappointment and multiple compression, pushing the S&P toward ~6,000 in a bear case [p.5–6, p.26, p.57–59]. |
| RIC 2026 BAML | AI‑linked valuations are broadly justified by earnings and returns on capital, with hyperscalers’ capex at ~60% of OCF and ROIC−WACC near 19% vs 4% for oil majors, sharply contrasting with telcos’ unsustainable 140% capex/OCF in 2000 [p.6–7]. Nvidia’s 25x 2026E P/E near its historical average, AI ETFs around +1σ expensive, and Nasdaq 100 prices moving in line with its rising earnings share vs S&P 500 support the view that current AI leaders’ valuations are high but still underpinned by profit expectations, though risks of an “AI air pocket” if monetization or power/capex bottlenecks disappoint are flagged [p.6–8, p.13, p.17]. |
| Stifel Outlook | S&P 500 EPS growth of ~13% in 2026 is partly underpinned by AI-related capex and associated revenue and margin expansion, supporting some of today’s elevated Tech valuations despite assumed modest P/E compression (~1 multiple point) [p.2–3]. At the same time, hyperscaler AI capex is driving FCF erosion and rising reliance on debt, which is widening credit spreads and compressing P/E multiples, raising doubts about the durability of Big Tech’s economic profit advantage and amplifying index-level valuation risk given their concentration [p.6, p.12–13, p.17]. |
| TRowe Outlook | Massive AI capex and the shift toward “physical AI” are central to the equity thesis, with hyperscalers’ “existential” investment and an estimated AI data center chip TAM rising from about USD 200 billion in 2025 to USD 1 trillion in 2030 underpinning growth expectations for semiconductors, energy, cooling, networking, and related infrastructure [p.7–8]. This multi‑year AI capex wave is expected to broaden equity opportunities across regions (notably Europe and Japan via industrials, automation, and robotics supply chains) and sectors, helping support valuations in AI‑linked areas even amid concerns about speculative excess and potential bubble risk [p.6–9]. |
| UBS Year Ahead | Equity upside and the justification for elevated valuations are heavily linked to AI‑driven earnings growth, with the Magnificent 7 projected to deliver about half of S&P 500 earnings growth in 2026 and AI‑related sectors dominating index weights [p.14, p.26, p.29]. Large AI capex is expected to translate into higher productivity and profits across enabling infrastructure (semiconductors, cloud, data centers), utilities and power networks, and AI applications, enabling markets to “grow into” current multiples, but an AI disappointment or capex overshoot is identified as a central downside risk to both earnings and valuations [p.16–18, p.29, p.47]. |
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