AI is a structural shift, not a normal tech cycle. Valuations are broadly justified, but speculative excess is emerging, especially in private markets. Alpha is broadening beyond mega-caps, offering opportunities for active, stock-specific returns. Global tech equities are in a complex phase due to generative AI reshaping industries. Leadership is changing, valuations are scrutinized, and investors focus on sustainable returns as AI adoption grows. The AI cycle is evolving, with generative AI challenging long-term values and accelerating adoption.
Valuations in technology stocks are rational, driven by earnings growth. Private AI markets show excesses. Investor skepticism is healthy, distinguishing genuine AI value from hype. Divergence in US, Asian, and European tech stocks reflects structural and policy differences. The US economy is strong, but global diversification captures relative opportunities.
Portfolio outperformance is linked to AI focus and rapid user adoption. Generative AI usage is expanding, supporting enterprise adoption. The Magnificent Seven mega-caps represent 30% of the fund, with opportunities broadening beyond them. Dynamic approaches are needed for mega-cap investments amidst innovation pace. Only Alphabet and NVIDIA outperformed the tech sector among mega-caps in 2025. AI is a structural shift, not a normal tech cycle. Valuations are broadly justified, but speculative excess is emerging. Alpha is broadening beyond mega-caps. Stock selection within mega-cap will be critical, rewarding companies with AI returns and penalizing those facing the “incumbent’s dilemma”.

Evans believes speculative AI names are vulnerable. Small and mid-cap tech could lag. Resilient areas include AI infrastructure providers with contracted demand like semiconductors and data-center equipment.

Investors should expect another strong year for AI-driven capex in 2026. AI spending remains low compared to prior infrastructure buildouts. Most AI capex comes from well-capitalized companies. New models may improve sentiment and adoption in 2026.

Evans underestimated the speed of AI development. AI agents are already performing complex tasks autonomously. This has increased confidence in sustained AI demand and productivity gains. Adoption will accelerate, making the impact of AI difficult for investors to ignore in 2026.

Read more at Morningstar.

AI is a structural shift, not a normal tech cycle. Generative AI could reshape industries. Valuations are broadly justified, with some speculative excess. Alpha is broadening beyond mega-caps for active, stock-specific returns.: Why the Next AI Stock Winners Won’t Be the Magnificent Seven