What the stock market needs from the AI trade in 2026
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If you invested in the AI narrative — through Big Tech stocks, exposure to China, or allocation to precious metals that may benefit from expansion of the technology — you struck gold in 2025.
Why it matters: Investors are betting that the AI bubble won't pop in 2026, and stocks tied to the narrative can still rally.
- But if they turn out wrong, the entire stock market is at risk, thanks to its overconcentration in a basket of tech heavyweights.
What they're saying: "To feel comfortable allocating capital to stocks, we must feel confident that we are not about to see a bubble burst," JPMorgan notes in its 2026 outlook.
- If you invest in stocks, then you are overallocated to AI, since nearly 50% of the S&P 500 market cap comes from companies tied to the technology.
- Investing in stocks today requires a belief in the success of AI, and a close monitor of whether or not the boom is about to become a bursted bubble.
Follow the money: What to watch to determine whether a bubble is coming:
🎉 Exuberance: If everyone is bullish, that historically is a negative indicator. Beware of groupthink positivity on Wall Street.
💳 Credit standards: Bubbles grow when cheap credit is used to "magnify gains and obscure risks," according to JPMorgan, which cites Oracle's debt issuance as an example of credit activity to monitor amid the AI buildout.
💸 Cash flows: Investors want to see companies being responsible with their balance sheets even as they fight to win the AI race. Google is seen as the AI trade winner of 2025 because it is spent responsibly, using just a quarter of its cash flow on AI capex. (Meta tapped roughly half its revenue for its AI needs.)
💪 Labor market: If AI delivers on its promise to increase productivity, then companies can do more with fewer people. That could boost profit margins and earnings, so long as the blow to the labor market does not get so severe that consumers cannot keep spending at those companies. No pressure.
Threat level: As Axios chief technology correspondent Ina Fried reports, 2026 is the "show me the money" year for AI.
- Any hint of doubt about whether tech companies were correct to spend nearly $700 billion on AI last year could send the market into a tailspin.
The bottom line: Despite the risks, somehow everyone is largely bullish, according to the latest global fund manager survey by Bank of America.
- That could be in part because if you were bearish during the last three years, you lost money, and probably credibility with clients.
- The question for 2026 is whether continued bullishness is warranted.
