AI stocks to remain dominant in 2026, analysts predict
Artificial intelligence is likely to remain a “dominant theme” in markets next year, analysts predict, shaking off fears of an AI crash.
St James’ Place expects AI stocks to maintain investor interest in 2026, with analysts and portfolio managers bullish on the sector’s run.
Valuations of top tech stocks have been rocketing up since the start of the year as investors raced to get their hands on a stake in the ever-growing technology sector, with the S&P 500 up 15.4 per cent this year to date, reaching $6,774.76.
The tech-heavy Nasdaq is up 19.3 per cent, hitting $23,006.36, bolstered by the performance of the ‘Magnificent Seven’ stocks, which include chipmaker Nvidia and online shopping giant Amazon.
However, St James’ Place believe investors will look to diversify away from the highly concentrated index.
Justin Onuekwusi, chief investment officer at St James’ Place, said: “Artificial intelligence is likely to remain a dominant theme in markets as we move into 2026, but investors will increasingly want to see how those benefits spread beyond a narrow group of mega-cap technology stocks.
“The key question is not whether AI continues to grow, but whether its impact becomes broad-based enough to justify today’s high valuations.”
Emerging market opportunities
In particular, Onuekwusi noted tech opportunities emerging in emerging markets across Asia, with many portfolio managers opting to increase the capital they allocate to the region.
He said: “We continue to see value in looking beyond the most crowded parts of the market.
“Emerging markets remain attractively priced relative to the US, and a weaker dollar can provide a meaningful tailwind by easing financing pressures and supporting balance sheets.
“Over time, tilting portfolios towards cheaper asset classes has consistently improved long-term return potential.”
South Korea’s Kospi index, which is home to Samsung and chipmaker SK Hynix, is up a staggering 67.6 per cent this year, hitting 4,020.55 KRW.
The Shanghai Composite index, which hosts semiconductor company Nexchip, is also up 19.25 per cent this year.
Carlota Estragues Lopez, equity strategist at St James’ Place, said: “Investors will need to think carefully about whether companies with very high valuations can continue to grow quickly enough to justify them.
“If profitability broadens beyond the largest technology names, we could see a rotation towards companies that use AI rather than simply build it, creating opportunities in smaller companies and international markets.”
UK and bond markets
The UK has also been tipped to become an attractive destination in 2026, thanks to the market’s international diversification, with approximately three-quarters of the FTSE 100 generating a large share of its revenue overseas.
Oneukwusi said: “The UK equity market also looks compelling.
“Valuations are attractive versus global peers, dividend yields are among the highest internationally, and the market’s exposure to defensive sectors such as healthcare and consumer staples can provide resilience during periods of market stress.”
Bond markets also offer “attractive income”, particularly in corporate credit where “fundamentals are strong”, but analysts warned investors to stay alert to market challenges.
Greg Venizelos, income strategist at St James’ Place, said: Private credit has grown rapidly in recent years, and while issues have so far been isolated, the scale of the market means investors need to remain alert.
“Stress in this area could spill over into traditional bond markets if investors are forced to raise liquidity quickly.”
“Investors are likely to punish governments that pursue imprudent fiscal policies or undermine the independence of central banks. Bond markets are highly sensitive to credibility, and that will remain a key theme in 2026.”