One of the parallels I keep coming back to when thinking about today’s markets is the mid to late-1990s – a period when global investors were once again drawn toward the world’s primary growth engine. Then, it was the internet – highly US-centric in both innovation and capital formation. Now it is artificial intelligence (AI) – and soon blockchain too.
While China is widely expected to dominate AI once the technology reaches the humanoid robot phase, that moment still lies several years ahead. From an investment perspective today, the AI opportunity set is far more immediate, centred on training, inference and ‘agentics’ – autonomous AI decision-making – where the US, in our view, is firmly in the lead.
During the internet buildout, investors had little choice but to allocate capital to the US in order to gain exposure to the early beneficiaries of that technological shift. A similar dynamic is now re-emerging with AI, with capital flows once again gravitating toward US markets. As in the 1990s, those flows can coexist with falling interest rates, as productivity-driven growth offsets inflationary pressures. In our framework, this sets the stage for a strong NASDAQ and a resilient US dollar.
Essentially, what we expect to see over this year is a new version of what many had, before 2025, called US exceptionalism – this time driven by micro effects, not macro policy. In the years following the pandemic, US outperformance was driven primarily by macro forces, namely an aggressive fiscal response that stimulated consumption and investment while much of the rest of the world remained fiscally constrained.
This time, the impulse is bottom-up. The growth we expect to see in 2026 will emerge from firm-level innovation and capital spending decisions, particularly in the US, pulling global investors toward opportunities that require US dollar exposure.
“Rather than AI builders, the most compelling opportunities increasingly now sit with AI adopters – companies able to embed AI into existing software ecosystems and translate it into measurable productivity gains.
Picks for ‘26 – read more
Artificial intelligence: Stuart Gray, WTW – Potential v FOMO – the two sides of the AI coin
Chinese equities: Mike Willans, Keyridge – Ride the wave of reform and innovation in China
Global growth: Daniel Murray, EFG Bank – Global risks and opportunities for the year ahead
Healthcare: James Douglas, Polar Capital – Is healthcare the smart complement to tech?
Japanese equities: Sumitomo Mitsui DS AM – Four catalysts for Japanese equities in the year ahead
Luxury brands: Sean Koung Sun, Thornburg IM – Scarcity is engine of long-term value creation
US equities and AI: Hani Redha, PineBridge Investments – A micro-driven pivot back to the US
US smallcaps: Bill Hench, First Eagle Investments – US smallcaps look poised for a comeback
At the same time, markets are becoming far less forgiving of indiscriminate infrastructure buildouts – a development that, as an investor, I see as constructive. Rather than AI builders, the most compelling opportunities increasingly now sit with AI adopters – companies able to embed AI into existing software ecosystems and translate it into measurable productivity gains.
This micro-driven divergence is occurring against a very different global backdrop than the one that prevailed just a few years ago. Post-Covid, US fiscal activism was absorbed easily because private sector investment was weak.
Today, the opposite is true. US private sector investment is becoming increasingly vibrant, driven by AI and all the electricity it will require. Both Europe’s and Japan’s governments are much more interested in investment, yet their private sectors – facing trade issues both from US tariffs and China’s competitive threat – are not overly strong.
China presents a contrasting picture. Private sector investment has fallen sharply, alongside consumption, with strength concentrated only at the top end of the income distribution – a K-shaped pattern reminiscent of the US.
These trends appear to be linked – at least in part – to the government’s ‘anti-involution’ policies, which are designed to curb excessive investment, particularly at the local government level. The only investment appetite in town is seemingly for more central-government-driven infrastructure.
AI – the engine of the next cycle
History suggests certain technological breakthroughs can usher in extended periods of above-average, productivity-driven and largely non-inflationary growth. Job markets are often dislocated as the emergence of new professions lags the interim rise in earnings and stocks with extended above-average returns. Term premiums also rise – a bad thing for long bonds – given heavy investment demands. Despite bubble fears, our work suggests we are still relatively early into such a period.
Rather than decelerating, growth appears poised to reaccelerate – particularly in the US – as the AI-driven investment cycle extends through 2026 and beyond. Near-term liquidity disruptions should normalise early in the year, providing support for markets. US fiscal policy is also likely to turn more stimulative – and, again, history suggests midterm election years tend to reinforce that bias.
China, too, is attempting to reaccelerate growth through a combination of government infrastructure spending and further anti-involution reforms. Past reform cycles of this nature have typically been accompanied by offsetting liquidity injections. In 2015/16, those injections flowed primarily into real estate; today, expansion of the balance sheet of the People’s Bank of China appears to be finding its way into equity markets instead.
From the US stockmarket perspective, this set-up looks more like the mid-1990s than 2000. The internet bubble burst in early 2000 from impatience: they ‘built it’ but the payoffs ‘did not come’ – at least, not soon enough. The true killer apps of social media arrived much later, with Facebook in 2004 and the iPhone in 2007.
If AI does turn out to be a bubble – which is not our view – the trigger would likely be delayed or ineffective applications rather than current concerns around valuation or hyperscaler capital spending. Importantly, even after their recent capex increases, hyperscalers are still expected to generate free cashflow in excess of planned capital spending or debt issuance over the 2026-28 period.
For me, that combination – micro-led innovation, disciplined capital allocation and strong cash generation – is what underpins the case for a renewed, and more durable, phase of US exceptionalism.
Hani Redha is a portfolio manager at PineBridge Investments
