BlackRock: AI will still dominate the market in 2026, but speculative trading and leverage may increase volatility.

The world's largest asset management company BlackRock, Inc. predicts that artificial intelligence (AI) will continue to dominate the market in 2026, but at the same time, it forecasts that speculative trading and leverage operations will increase market risks, potentially causing investors to experience volatile market conditions similar to the large sell-off last month. Helen Jewell, Chief Equity Strategist for Europe, the Middle East, and Africa (EMEA) at BlackRock, Inc., stated that the returns on AI-related investments will continue to rise, but there may be doubts about industry valuations or prospects during this period, leading to stock price volatility. She said, "Do I expect AI growth returns to be on the rise? Yes, they are driven by staggering capital expenditure from companies with huge cash reserves." But she also noted, "Do I think this process will be tumultuous? Yes, it will be." She pointed out that market crowding and leverage are key reasons for market fluctuations. Just last November, concerns about companies overspending to build new data centers led to the largest sell-off in the U.S. stock market in months. Meanwhile, hedge funds are also trading with near-record levels of leverage, increasing market risks - if asset prices fall and force them to liquidate positions to meet lender demands for cash, it could lead to rapid and intense short-term sell-offs. Jewell stated that she is increasing positions in European energy and power infrastructure stocks, such as Siemens Energy, due to the demand for turbines, grid technology, and Clean Energy Fuels Corp. driven by the AI boom and the wave of building new data centers. Despite the ongoing debate about whether there is a bubble in AI, last month's third-quarter earnings report from NVIDIA Corporation and numerous Wall Street banks' refutations of the AI bubble theory, as well as the launch of Alphabet Inc.'s Class C Gemini 3, have somewhat eased concerns about an AI bubble. From an optimistic perspective, the recent pullback in AI-related stocks is actually a healthy adjustment before further gains. Major tech giants at the core of AI trading such as Microsoft Corporation, Amazon.com, Inc. (AMZN.US), Meta Platforms (META.US), and Alphabet Inc. Class C will continue to invest resources in developing related products, and with no signs of slowing down, combined with strong industry demand and a regulatory environment relatively favorable to growth, they believe the AI investment cycle is still in its early stages. Regarding the latest views on the AI bubble, Jean Boivin, head of the think tank at BlackRock, Inc., believes that the AI boom is far from speculative frenzy. This cycle is driven by real corporate investments, profits, and productivity growth, rather than the irrational exuberance that defined the dot-com bubble in the early 2000s. He said, "We believe that the bubble framework is not as useful for investors at this stage, and we should avoid putting everything solely on hindsight indicators or evaluations." He pointed out that describing the AI boom as a bubble is "incomplete" given the unprecedented scale and speed of construction still underway. He also highlighted the healthy skepticism present in today's market, stating, "There is so much discussion about the bubble potential...People are aware of the risks. It is only when there is no discussion on the subject that we should be more concerned." Candace Browning, head of Global Research at Bank of America, continues to advocate for a "K-shaped" economy as a significant feature of the AI-driven stock market boom, which also increases risk levels. While concerns remain, she believes that fears of an imminent burst of the AI bubble are exaggerated, and AI investments are expected to continue growing steadily in 2026. The bank believes that the AI boom has not yet entered a bubble stage. Based on historical analysis of bubbles, the tech sector of the U.S. stock market remains robust; a weak dollar, declining interest rates, and low oil prices also provide a solid backdrop for strong performance in emerging markets in 2026. With a better understanding globally of the impact of AI on economic growth, inflation, and corporate investment, the bank is preparing for more market volatility in 2026. Wall Street's optimistic outlook for the U.S. stock market in 2026 As the year comes to an end, several top Wall Street investment banks have released their forecasts for the S&P 500 index in 2026. While there are differences in target levels, the general consensus is that, with the continued wave of AI investments, a shift in monetary policy towards easing, and the expansion of profit growth, U.S. stocks are expected to continue their upward trend. JPMorgan, led by Dubravko Lakos-Bujas, has set the highest target level on Wall Street so far. The stock strategy team at JP Morgan has set a year-end target of 7,500 points for the S&P 500 index in 2026, pointing out that if the Federal Reserve continues to implement rate cuts, this benchmark index is likely to surpass 8,000 points in the coming year. JP Morgan's forecast for the S&P 500 index reaching 7,500 points in 2026 is primarily based on an expected profit growth rate of 13% to 15% over the next two years. In their base scenario assumptions, JP Morgan expects the Federal Reserve to make two more rate cuts, followed by a prolonged pause. The bank believes that continued improvement in the inflation situation will prompt the Fed to increase the intensity of rate cuts, which will drive the S&P 500 index to climb to levels of 8,000 points and above. JP Morgan stated in a client report, "Despite concerns in the market about the AI bubble and valuation pressure, we believe that the current high price-earnings ratios precisely reflect supernormal profit growth, the AI capital spending boom, increased shareholder returns, and expectations of loose fiscal policy (i.e. the 'Build Back Better Act'). "More importantly, the profit boost coming from relaxed regulation and the wider range of productivity improvements related to AI have not been fully recognized by the market." Deutsche Bank has set a year-end target of 8,000 points for the S&P 500 index in 2026, with confidence stemming from its expectations of "spreading" profit growth. Deutsche Bank strategists predict that earnings per share for the S&P 500 index will increase significantly by 14% to $320 next year. The bank believes that the growth momentum brought about by AI will transcend the category of the "big seven tech giants" and spread to a wider market scope, including financial and cyclical sectors, fueling a more broadly based bull market. Morgan Stanley strategist Michael Wilson is also optimistic, predicting that the S&P 500 index will climb to 7,800 points in the coming year. Michael Wilson believes that the recent market sell-off is nearing its end, providing a good opportunity to position oneself for long positions in 2026. He anticipates that the Fed's rate cut measures will support the stock market, while AI technology will drive efficiency improvements in companies. His strategy team particularly favors non-essential consumer goods, healthcare, financials, industrials sectors, and small-cap stocks. UBS Group AG's global research department released a report stating that the rise in the U.S. stock market driven by AI will continue until 2026. The bank has set a year-end target of 7,500 points for the S&P 500 index next year, with the core logic being that corporate profits are expected to maintain strong growth and the highly concentrated yet robust tech sector will continue to contribute to gains. The report also points out that while concerns about bubble risks and AI-related stock valuations remain, the actual impact of such concerns on the market is expected to be limited. HSBC has also set a year-end target of 7,500 points for the S&P 500 index in 2026, expecting the index to achieve double-digit gains for the second consecutive year under the core drive of the AI investment boom. Nicole Inui, head of stock strategy for the Americas at HSBC, stated that with the support of "macroeconomic stability, easing policy uncertainties, and the AI investment boom," earnings per share for S&P 500 index components are expected to grow by 12%. In addition, Barclays raised its expected year-end target for the S&P 500 index in 2026 to 7,400 points, and stated that despite weak macroeconomic growth, large-cap tech stocks are performing well, and the monetary and fiscal environment is continuing to improve. The bank's stock strategy team noted that the new target level, up 5.7% from the previously set 7,000 points, while also raising the earnings per share expectation for the S&P 500 index in 2026 from $295 to $305. They believe under a low-growth macroeconomic environment, large-cap tech stocks continue to operate steadily, and the competitive heat in the AI sector shows no signs of cooling, so profit growth in the tech industry will exceed Wall Street's general expectations.