AI and Power Infrastructure Projected to Fuel Global Market Growth in 2026
Boston, Sunday, 21 December 2025.
With top tech firms projecting $520 billion in capital spending, State Street identifies AI and utilities as primary 2026 growth engines, though elevated valuations demand a selective strategy.
The Artificial Intelligence Capex Wave
As we approach the end of 2025, the economic narrative for the coming year is being decisively shaped by massive capital allocations toward artificial intelligence. State Street Investment Management, which now oversees $5.12 trillion in assets under management [3], forecasts that the “Magnificent 7” technology giants will increase their capital spending by over 30% year-on-year, reaching approximately $520 billion in 2026 [1]. This aggressive investment strategy confirms that the United States remains the epicenter of the AI trade, with these expenditures expected to drive broader macroeconomic momentum and sector leadership throughout the year [1]. Looking further ahead, major hyperscaler capital expenditures are projected to continue this upward trajectory, growing from $519 billion in 2026 to $588 billion in 2027, representing a projected increase of 13.295% [6].
Navigating Elevated Valuations
While the growth narrative is compelling, the cost of entry into the US equity market has become historically steep. The S&P 500 is currently trading at a next-twelve-months (NTM) forward price-to-earnings multiple of 23.1x, signaling that optimism is heavily priced in [1]. This valuation premium coincides with heightened retail participation; as of November 2025, retail investors were allocating to stocks at levels approaching their 2021 highs, while institutional investors had begun reducing equity allocations from peaks seen in October [6]. State Street advises a selective approach, noting that while tax refunds may provide consumer support in early 2026, the combination of policy risks and high valuations could exacerbate market volatility [1].
The Industrial and Infrastructure Pivot
Beyond pure technology plays, the physical infrastructure required to power AI and modernize defense is creating significant opportunities in the industrials sector. Earnings growth for industrials is projected to hit 18% in 2026, underpinned by increased defense spending and the urgent need for power infrastructure investment [1]. This trend is not limited to the US; globally, nations are ramping up physical investment, exemplified by Germany’s €500 billion infrastructure package [1]. The divergence in sector capital flows highlights this shift, with the Technology sector attracting $13.282 billion in the trailing 12 months ending November 2025, while the Energy sector saw outflows of $5.45 billion [6].
Global Divergence and Opportunities
Outside the United States, specific markets are poised for a resurgence driven by structural reforms and AI adoption. Japan is projected to see a significant acceleration in corporate performance, with earnings growth expected to jump to approximately 10% in 2026, a marked improvement of 8 percentage points from the 2% growth observed in 2025 [1]. This optimism is supported by policies such as the AI Promotion Act, aiming to position Japan as a global AI leader [1]. Meanwhile, Emerging Markets (EM) present a constructive outlook for 2026, aided by AI-led productivity growth in nations like India, Saudi Arabia, and the UAE, alongside a potentially weaker US Dollar [1]. Despite recent losses in November 2025, EM stocks have outperformed developed markets over longer time periods [6].
Macroeconomic Backdrop: Gold and Rates
Investors must also navigate a complex macroeconomic environment where traditional safe havens are trading at record levels. As of early December 2025, gold spot prices were approaching all-time highs at $4,239.43 per ounce, driven by renewed ETF demand and expectations of Federal Reserve easing [6]. In the fixed income markets, the US Treasury curve remains a focal point, with the 10-year yield standing at 4.02% as of November 30, 2025 [6]. With global central banks expected to maintain accommodative monetary policies heading into 2026, the interplay between high equity valuations and yielding assets will be critical for portfolio construction [1][6].