20 Jul 2026
As we enter the second half of the year, equity markets have delivered a remarkable first half. Despite conflict in the Middle East and disruption to shipping through the Strait of Hormuz, AI has remained the defining driver of equity performance.
By the end of June, the S&P 500 had gained nearly 10%, while the Nasdaq 100 and Russell 2000 delivered roughly twice that. Europe posted more modest gains, but Asia led global markets. Despite double-digit declines in China (MSCI China -16%), Asia was boosted by striking gains in Japan's Nikkei 225 (+39%), Taiwan (+59%) and Korea (+101%). The common denominator has been AI.
Crucially, this remains an earnings story rather than a valuation story. Our bottom up earnings expectations for global technology for this year have risen nearly 40% year-to-date, while valuations remain broadly in line with recent historical ranges. Markets continue to reward companies converting AI investment into tangible earnings growth.
Looking ahead, agentic AI marks the next phase of the investment cycle. As businesses move beyond experimentation and embed AI into workflows, the focus is shifting from infrastructure to productivity. Demand is broadening beyond semiconductors to memory, optics, advanced packaging, automation and power, while AI is beginning to generate measurable productivity gains across the wider economy.
The key question is whether this earnings momentum can be sustained. That will depend on continued AI adoption, productivity gains that justify investment and the pace at which supply bottlenecks ease. While today's constraints support pricing power across parts of the AI ecosystem, these conditions will not last indefinitely.
The opportunity is also becoming more selective. Transformational technologies rarely reward every participant, and as investment accelerates, so does the risk of capital misallocation. Markets are likely to become less forgiving of companies that fail to convert investment into sustainable earnings and cash flow. At the same time, sectors such as financials, healthcare and industrials appear increasingly well placed to benefit from AI-driven productivity gains, broadening opportunities beyond traditional technology leaders.
Risks remain elevated. A more fragmented geopolitical environment, persistently higher energy prices and renewed inflation could weigh on sentiment and push monetary authorities to a more hawkish approach. Nevertheless, the earnings backdrop remains constructive. AI continues to represent the most important structural growth opportunity in global equities, but the investment case is evolving. Future returns are likely to depend less on broad exposure to the theme and more on identifying companies capable of converting technological leadership into durable earnings growth.
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Niamh Brodie-Machura
CIO, Equities