Broadening beyond AI

The equity market is beginning to broaden beyond the AI investment cycle as earnings growth, valuation gaps and economic resilience create opportunities across overlooked sectors and regions.

• AI demand remains robust, supported by growing backlogs and capacity constraints, while returns are still concentrated among semiconductor companies and hyperscalers that are increasingly financing investment through debt and equity markets.
• The next investment question is whether companies in financials, healthcare, industrials and other sectors can generate measurable revenue growth, margin expansion or productivity gains from embedding AI into their operations.
• Earnings revisions improved across a wider range of sectors in the quarter, suggesting a transition from AI infrastructure spending toward adoption and monetisation, although the evidence does not yet establish a durable rotation.
• Energy, industrials and materials declined from approximately 32% to 21% of global market capitalisation over the past two decades, while European and Japanese companies trade at historical discounts to US peers despite having globally diversified revenues.
• Manufacturing surveys remain expansionary in parts of developed Europe, and China has continued to absorb prolonged property and construction weakness; meanwhile, energy markets have absorbed geopolitical and shipping disruptions, although elevated oil prices and depleted inventories remain risks.

Takeaway: Investors should not simply replace technology with a basket of cheaper sectors, but use company-level research to identify businesses and regions converting investment and economic resilience into sustained earnings, while recognising that the evidence for a lasting broadening remains incomplete.