Constructive but vigilant: investing through the AI supercycle

The year 2025 unfolded as a contest between two narratives. Early in the year, geopolitical fragmentation dominated headlines. The Liberation Day Plan in the United States reignited tariff tensions and triggered a sharp market correction, as investors questioned the durability of global trade and policy coordination.

As the year advanced, a second narrative gained momentum. The innovation cycle, fueled by record AI investment, gradually offset geopolitical stress. NVIDIA’s exceptional results in May, with a 69% surge in revenues, the record AI pipeline announced in November, and OpenAI’s valuation surpassing $500 billion later in the year, reinforced how innovation was driving profits and confidence. Fiscal support in the U.S. and Germany amplified this shift, and markets steadily recovered. As illustrated in the chart below, these alternating narratives defined market performance: volatility around policy shocks gradually gave way to renewed optimism as technological progress and capital spending took the lead. Even the Trump–Xi meeting in Seoul in late October — a symbolic reminder of geopolitical rivalry — failed to derail the uptrend.

This turning point echoed the message of the 2025 Nobel Prize in Economics, awarded to Joel Mokyr, Philippe Aghion and Peter Howitt for their work on innovation, knowledge diffusion and “creative destruction.” Their insight is timely: sustainable prosperity rests not on enthusiasm but on the capacity to translate innovation into measurable productivity.

That idea came to define the tone of the year’s closing months. By late 2025, the innovation narrative had prevailed. Markets rewarded progress over protectionism, and the focus turned from short-term shocks to long-term transformation. Across boardrooms, earnings calls and economists’ forecasts, the conversation shifted decisively toward innovation as the central driver of the next growth phase, This Global Market Outlook explores how investors can stay positioned – constructive on opportunity yet vigilant on risk - as the AI supercycle develops in a more fragmented world.

The title of this report reflects a conviction: technology is not a passing theme but the structural engine of global growth. The growing reach of digital infrastructure, automation and data across industries shows that technology has become the foundation of the economy. Artificial intelligence and robotics are accelerating this transformation, extending a long-term trend that began well before the current cycle.

The rally in global equities—especially in the United States—has been led by the technology sector. The exceptional performance has been decisive: these firms combine innovation, scale and profitability to lead digitalization and capture most of global earnings growth. Since 2020, their profits have risen by over 340%, while other major indices gained about 70%. This divergence illustrates how innovation has become the defining force behind market performance and the main source of value creation.

Still, history counsels prudence. Transformative technologies often fuel exuberance that stretches valuations beyond fundamentals. Every great innovation—from railways to the internet—has mixed genuine progress with phases of overinvestment. The AI boom looks more resilient but is not immune to misallocation or inflated expectations. Amara’s Law holds: we overestimate technology’s short-term impact and underestimate its long-term power.

For investors, the opportunity is real but demands discipline. Maintaining a constructive approach to innovation while ensuring disciplined capital allocation is essential. Success will hinge less on chasing momentum and more on identifying where AI drives real productivity, sustainable margins and lasting value. Optimism must rest on evidence, not euphoria.

While artificial intelligence dominates this cycle, it is not its only engine of growth. Policy support, structural transformation and the shift toward more neutral monetary conditions sustain a constructive outlook. Fiscal cuts in the United States and new investment plans in infrastructure and defence across Europe are boosting demand and employment, offsetting trade frictions. On the monetary front, the gradual move toward neutral rates is easing financial conditions and expanding credit, creating a more supportive environment for investment and risk assets.

Beyond the short term, structural forces are reshaping global growth. AI leads this transformation together with automation, the energy transition and re-industrialisation. Electrification, clean energy and industrial modernisation are building a new investment landscape where policy and technology act in concert. These trends support a more balanced and diversified expansion but also demand discipline: fiscal expansion is approaching its limits and public finances are again centre stage. Meanwhile, geopolitical tensions and trade fragmentation continue to call for active, diversified and prudent management.

In this context, the report is organised around the Equation for 2026, shown in the diagram below, which summarises the forces that will shape the cycle. Four dimensions—fiscal policy, global trade, credit and valuation— define the balance between instability and innovation, between policy and markets. Each highlights a key challenge: fiscal sustainability, adaptation of trade to a new geo-economic order, financing the AI-driven capex boom, and whether current valuations remain justified after an exceptional earnings cycle. We dedicate specific sections of the report to address these four key questions.

These dimensions underpin the key questions that guide our analysis and connect the macro narrative with market strategy. They also lead to the identification of the main investment opportunities across four structural themes: the industrial renaissance, the rise of AI agents, the impact of lower interest rates and the rebalancing of global security. Together, they provide the roadmap for disciplined investing in a cycle defined by innovation and transformation.

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