AI-powered stock market performance

“This is a truly game-changing technology that will reshape the global economy in the years ahead,” the bank says.

On a day when Nvidia delivered blockbuster earnings and guidance, our call of the day argues that investors have officially crossed the point of no return with AI — and that nothing matters more heading into 2026 and beyond.

“AI will be the most important macro force in 2026, as traditional drivers like monetary and trade policy fade,” writes Ajay Rajadhyaksha, global chairman of research at Barclays, in the bank’s 2026 outlook, “As Goes AI.”

Rajadhyaksha says fears of the AI boom collapsing are overblown and expects the economic expansion to roll on for another year. Barclays has even raised its S&P 500 forecast for 2026 to 7400, up from 7000.

Recent market hiccups have stemmed from worries that AI companies may not deliver on massive tech spending, alongside fading hopes for one final Fed rate cut this year. But Rajadhyaksha stresses how real AI’s economic impact already is: roughly 1% of U.S. growth in 2025 came from AI-related investment — from data centers to telecom upgrades and construction.

“The scale of this build-out will likely dwarf the telecom boom. The U.S. is in the middle of its largest capex cycle in decades,” he says.

AI has also been a powerful engine for investor wealth. Since the end of 2022, AI-linked stocks have driven 75% to 80% of the S&P 500’s earnings and overall performance — even as consumers grapple with trade concerns, job worries and a tough housing market.

“Strong wealth gains from AI-sensitive equities are a big reason why. AI spending has fueled investment, and AI stocks have fueled consumption,” Rajadhyaksha notes.

The biggest risk? The AI revolution losing steam. With U.S. households holding $45–$47 trillion in equities, a 30% drop in valuations could wipe out about $15 trillion — crushing consumer spending, stalling AI investment, and potentially pushing the economy into recession.

Still, Barclays sees the analogy to the dot-com bust as overstated. Markets have recovered from every AI scare — including DeepSeek — and hyperscalers continue to show strong margins as real use cases multiply.

Barclays forecasts 2.1% U.S. growth next year, helped by fading tariff drags and fresh fiscal support from the One Big Beautiful Bill. They do not expect large AI-driven job losses; instead, they see productivity gains driving the next year of growth.

So how should investors position for the AI era?
Barclays is turning positive on the entire technology, media and telecom sector, citing secular AI-driven growth, heavy capex, and double-digit gains in cloud and digital advertising.

Other themes they favor include:

• Cyclical and growth stocks poised to benefit from Fed cuts
• Increased deal activity as financial conditions ease
• Financials, supported by a resilient U.S. economy
• Utilities, upgraded on lower rates and soaring data-center power needs

Sectors likely to lag the S&P 500: consumer, commodity-linked and healthcare, due to firm inflation, oversupply and regulatory pressure.

Style-wise, Barclays favors growth over value, driven by tech-led earnings strength. They also recommend exposure to 2-year Treasurys, expecting Fed cuts to remain in play. Internationally, Chile, Peru, Australia and South Africa stand to gain from rising demand for metals and critical minerals powering the AI boom.