“This is a truly game-changing technology that will reshape the global economy in the years ahead,” the bank says.
On a day when Nvidia delivered blowout results and guidance, our call of the day argues that investors have officially reached the point of no return with AI — and that it will be the driving force heading into 2026 and beyond.
“AI will be the most important macro factor in 2026, as traditional drivers like monetary and trade policy fade,” writes Ajay Rajadhyaksha, global chairman of research at Barclays, in the bank’s 2026 outlook, aptly titled “As Goes AI.”
Concerns about an AI narrative collapse are overblown, he adds, forecasting that the economic expansion still has room to run. Barclays has even raised its 2026 S&P 500 target from 7000 to 7400.
Recently, markets have stumbled as investors worry whether AI companies can justify massive spending, while fading hopes for one last Fed rate cut add to the pressure. But Rajadhyaksha underscores just how significant AI already is: roughly 1% of 2025 U.S. growth came directly from AI investment, spilling into construction, data centers, telecom, and networking infrastructure.
“The scale of this build-out will likely dwarf the telecom boom; the U.S. is in the midst of its biggest capex cycle in decades,” he says.
AI has also been a huge engine for stock-market gains. Since late 2022, AI-linked companies have contributed 75% to 80% of the S&P 500’s earnings and total performance — all while consumers face trade uncertainty, job concerns, and a sluggish housing market.
“Strong wealth gains powered by AI-sensitive equities are a major reason why. AI spending supported investment, and AI equities supported consumption,” Rajadhyaksha notes.
The biggest risk? The AI revolution losing momentum. With U.S. households holding $45–$47 trillion in equities, a 30% valuation drop would erase about $15 trillion in wealth — undermining consumer spending, choking off AI capex, and potentially triggering a recession.
Still, Barclays remains optimistic. Fears of a 2000-02-style collapse are exaggerated, Rajadhyaksha argues, pointing to how markets have consistently recovered from AI scares like DeepSeek, while hyperscaler margins remain strong and real AI use cases continue to expand.
The firm expects 2.1% U.S. growth next year as tariff pressures ease and fiscal support from the One Big Beautiful Bill kicks in. They do not foresee meaningful AI-driven job losses, instead expecting productivity to drive growth over the next year.
How to invest in the AI boom?
Barclays is bullish on the entire technology, media, and telecom sector, citing secular growth, robust AI-driven capex, and double-digit expansion in cloud and digital advertising.
Other favored themes include:
- Cyclical and growth stocks poised to benefit from Fed rate cuts
- M&A opportunities spurred by easier financial conditions
- Financials, supported by U.S. economic resilience
- Utilities, upgraded to positive thanks to lower rates and soaring data-center power demand
Meanwhile, consumer, commodity-linked, and healthcare names may lag due to stickier inflation, oversupply, and regulatory headwinds.
Barclays also prefers growth over value, powered by tech-led earnings strength, and recommends holding 2-year Treasurys, with Fed cuts still on the table. Globally, Chile, Peru, Australia, and South Africa stand to benefit from rising demand for metals and critical minerals tied to AI.
