2026 Market Themes Deep Dive: Artificial Intelligence

Posted by Helena Eaton on 1st June 2026

In this article, Bedrock’s Head of Investment Advisory, Helena Eaton, explores one of our Top Market Themes for 2026: The broadening of the AI opportunity beyond infrastructure.

At the start of the year, Helena noted that while the AI hardware focus that defined 2025 would remain an enduring and important component of the investment landscape, investor focus was set to expand towards monetisation, including adoption, integration, and productivity gains.

Five months into the year, she reflects on how this theme is evolving in practice, examining the developments now unfolding across the AI landscape.

AI bubble concerns followed by a semiconductor rally

The year began with renewed concerns about an AI bubble, with the Nasdaq index declining by 9% from the start of the year through the end of March, as investors grew wary of hyperscalers’ large capital expenditures and stretched valuations.

Since early April, optimism around the AI trade has returned, supported by easing geopolitical concerns in equity markets and strong earnings. This has pushed the Nasdaq up 20% year-to-date.

Semiconductor stocks have led the gains. The Philadelphia Stock Exchange Semiconductor Index (SOX) is up more than 80% year-to-date, driven by upward earnings revisions, improved hyperscaler capex outlooks, and increased confidence in token consumption and AI usage. Nvidia’s strong earnings and forward guidance which both exceeded expectations have further reinforced confidence in the growth prospects of the AI theme.

Investor positioning in AI remains strong, with the trade increasingly exhibiting momentum characteristics. According to Goldman Sachs, hedge funds entered Q2 2026 with the largest quarterly increase in Information Technology exposure on record. They also added to Communication Services and now hold a record portfolio weight in semiconductors.¹

AI disruption fears

At the same time, investors have been trying to identify sectors and companies whose business models are most vulnerable to AI-native competitors. The “AI disruption” trade began with a sell-off in legacy software stocks, with the MSCI World Software Index, although recently rebounded, still down 7% year-to-date. According to Goldman Sachs, hedge funds entered Q2 2026 with their lowest exposure to software since 2019.¹

Concerns have since spread to other sectors, including insurance brokers, legal services providers, and even parts of the wealth management industry.

The sharp rebound in the broader software sector since the end of last week suggests that investors are eager to re-engage with a segment that has faced significant pressure since last year. Nevertheless, volatility may persist in the coming months until there is clearer visibility on which incumbents will successfully adopt and monetise AI. Selectivity will be key, with a focus on companies that are most effective in integrating AI into their product offerings.

Q1 earnings of AI-related stocks

So far, Q1 earnings from AI-related companies have been strong. According to Bloomberg, 93% of chipmakers surpassed earnings expectations, with an average upside surprise of nearly 25%.

Performance within the “Magnificent 7” has shown some dispersion. Alphabet is up 21% year-to-date and Nvidia approximately 13%, while Microsoft has lagged, down 7%, amid concerns that its office AI offering may be inferior to competing products from privately owned firms such as Anthropic and OpenAI.

Recent gains in the S&P 500 have been heavily concentrated in AI-related stocks. Just 10 companies have accounted for 71% of the index’s 18% rally since March 30, led by Alphabet, Nvidia, Micron, Amazon, and Intel, according to Société Générale².

Although Nvidia reported results and guidance above expectations, it also highlighted an important shift: AI demand is expected to broaden beyond hyperscalers, with enterprises and governments becoming increasingly significant sources of revenue. Throughout the earnings season, investors have paid close attention to real-world use cases for AI products.

Progress in AI adoption

We are beginning to see early signs of progress in AI adoption and associated productivity gains. According to recent research from Morgan Stanley, AI adoption is accelerating operational efficiency, with evidence that output per employee is increasing in “high AI exposure” industries³.

Companies are also becoming more explicit in quantifying the benefits of AI. Among S&P 500 firms, 25% cited at least one measurable impact from AI in Q1 2026, up from 13% in Q1 2025⁴.

Although adoption remains at an early stage, an increasing number of companies are outlining cost-reduction plans in specific business areas driven by AI deployment. Recent commentary from CEOs of major banks highlighting expected productivity gains and workforce implications has attracted significant media attention and sparked broader debate about the future of work⁵. According to McKinsey & Co., approximately 30% of work hours in finance and insurance could be automated by 2030, contributing to further productivity improvements.

The Bigger Picture

In summary, we maintain our conviction on the AI theme, particularly as signs of adoption and monetisation continue to build momentum. However, we would not be surprised to see a short-term pullback especially in AI hardware stocks if the currently crowded momentum trade begins to unwind.

We are also closely monitoring the pipeline of large AI-related IPOs expected later in 2026, including Anthropic and OpenAI, which could broaden public market investment opportunities in the AI space.

If you’d like to explore this theme further, or discuss how you can take advantage of opportunities in this area, please get in touch with us at info@bedrockgroup.com.

Disclaimer: Certain statements included within constitute ‘forward-looking statements.’ These statements, which may include words like ‘believes,’ ‘expects,’ or similar expressions, are subject to numerous risks and uncertainties. Actual results may differ.

References:

[1] All In on AI, Hedge Fund Trend Monitor, Goldman Sachs, May 22, 2026. 

[2] Market Alert, Societe Generale Investment Solutions, May 18, 2026.

[3] Productivity: AI is boosting output rather than cutting jobs, US Economics Weekly, Morgan Stanley, April 24, 2026.

[4] US Equities Mid-Year Outlook: Déjà vu All Over Again… with Some Twists, Morgan Stanley, May 13, 2026

[5] Dimond Says J.P. Morgan will hire more for AI, fewer bankers, Bloomberg, May 21, 2026; Bank Executives’ AI talk takes frightening turn for workers, Bloomberg, May 19.

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