30 Jun 2026
AI monetisation the next phase
Global equity markets extended their gains in May, with most major indices delivering mid-to-high single-digit returns. Japan led performance, with the Nikkei 225 rising 11.9%, while China and Hong Kong were notable exceptions. Markets remained resilient despite elevated geopolitical uncertainty, higher oil prices, inflation concerns and ongoing debate around monetary policy.
Encouragingly, market leadership has been supported by earnings delivery, with AI beneficiaries continuing to deliver strong results and support upward revisions to earnings expectations. However, the market narrative is evolving. What began as a narrow rally led by a handful of technology companies is broadening into a wider opportunity set.
The first phase of the AI cycle was defined by infrastructure investment. With hyperscaler and enterprise spending continuing to accelerate, that dynamic remains intact. While virtually all of the value has accrued to the semiconductor companies so far, investor focus is shifting towards deployment. Across software, e-commerce, digital advertising and enterprise applications, businesses are using AI to improve productivity, automate workflows and reduce costs. While it is early days, adoption is broadening, and AI is likely to become increasingly embedded across products, services and industrial processes, creating opportunities well beyond the technology sector.
Asia is central to this next phase. The region occupies a unique position across the AI value chain, spanning semiconductor manufacturing, technology hardware, industrial automation and digital services. Strong AI and semiconductor demand continue to support the outperformance of Korea and Taiwan.
At the same time, many parts of Asia offer exposure to AI adoption and innovation at valuations that remain attractive relative to some of the most crowded areas of the US market. In China, opportunities in automation, advanced manufacturing, robotics, healthcare innovation and AI-related technologies appear compelling, although the market remains one of selective opportunities rather than broad-based recovery.
More broadly, dispersion across countries, sectors and companies remains unusually high and is likely to persist. As structural themes become increasingly important drivers of performance, earnings quality, competitive advantage, and execution matter more than broad market direction.
Risks remain and any escalation in the Middle East conflict, sustained higher oil prices, renewed inflation pressures or delays to policy easing could challenge sentiment. Elevated expectations also leave highly valued AI-linked companies vulnerable to earnings disappointments.
Nevertheless, the underlying earnings backdrop is supportive. AI continues to be the dominant structural theme with a broadening opportunity set across regions and sectors, and Asia is a core part of that. Investors should focus on companies capable of translating structural themes into durable earnings growth.
Stuart Rumble
Head of Investment Directing, Asia Pacific
May saw global equities extend April’s gains, with the S&P 500, Nasdaq and Dow Jones Industrial Average reaching fresh record highs. Year-to-date returns are now firmly in double digits across the US, Japan and parts of Asia Pacific, while European markets continue to advance at a more measured pace.
Falling oil prices on easing concerns over Middle East supply disruptions supported growth expectations and tempered inflation fears. Credit spreads tightened, volatility remained subdued and broader risk sentiment improved despite ongoing rate policy uncertainty.
Market leadership remained concentrated in AI-related beneficiaries, particularly semiconductors, memory, software and data-centre infrastructure. Software companies extended their recovery.
Market leadership concentrated in AI beneficiaries
Source: Fidelity International, LSEG DataStream, 31 May 2026.
First-quarter earnings growth and beat rates reached their strongest levels since 2021, reinforcing confidence in corporate fundamentals. Within the S&P 500 technology sector, 99% of companies exceeded expectations, delivering aggregate quarter-on-quarter earnings growth of almost 30%.
Europe’s earnings backdrop is also improving. Q1 results were the strongest since early 2023, with earnings generally exceeding expectations and forward estimates moving higher. A sustained easing of geopolitical tensions could support further inflows given attractive valuations and strengthening earnings momentum. However, elevated rates, policy uncertainty and uneven growth continue to favour selectivity.
The market narrative is evolving. While the AI investment cycle remains intact, investor focus is shifting from infrastructure buildout towards monetisation. Greater scrutiny is being placed on return on investment, earnings durability and the extent to which elevated capital expenditure translates into productivity gains and revenue growth.
The outlook is constructive but increasingly selective. Earnings momentum remains supportive, AI investment continues to accelerate and lower energy prices provide a favourable backdrop for growth. However, elevated valuations, crowded positioning and weaker seasonal trends heading into Q3 suggest greater emphasis on earnings delivery, valuation discipline and demonstrable returns from AI investment as well as broadening towards companies benefiting from AI deployment.
North Asia remained the standout performer within Asia Pacific, with South Korea, Taiwan and Japan leading gains. Robust earnings momentum across semiconductor, memory and data-centre supply chains, combined with continued AI-driven capital expenditure, attracted the majority of investor flows and supported further re-rating across technology-related sectors.
Asia outperforms developed markets
Source: Fidelity International, LSEG DataStream, 31 May 2026.