The enormous capital expenditure on AI infrastructure will create a new wave of investment potential in 2026, with some of the most promising equity opportunities lying beyond large-caps, James Abela, portfolio manager at Fidelity International says.
Mr Abela says the capital required to fund AI infrastructure, from power supply, data centres, software and semiconductors, will drive growth for many years to come.
“While early AI hype focused on software and chip designers, the next phase includes significant growth across a range of industrial, technology, and utility companies,” Mr Abela says. “. Big tech capital expenditure is approaching US$350-400 billion, spread across many industries, with several winners emerging from this shift. Many of these companies have re-rated from 15-20x price-to-earnings towards 40x, with sales growth compounding at higher rates than ever. It's ultimately the next industrial revolution.”
Mr Abela says AI is a massive productivity tool which globally, has a significant opportunity set outside of those companies selling AI.
“Data centres, hardware, software, semiconductors, cloud, are all areas where investors can get exposure to the AI thematic. The breadth of the investment potential is also widening across the medical, financial and consumer landscapes, so the investment potential is becoming even more significant.”
“Currently the market is being divided up into the AI winners, AI losers and productivity tools. Investors should thoroughly assess companies to make sure they do not fall in the AI loser category, as the derating on those companies, such as Concentrix (NASDAQ: CNXC) has already been enormous. And it's unlikely to change in 2026. AI winners are more likely to compound, to continue to evolve in this revolution that is taking place,” he says.
But Mr Abela says global small and mid-cap companies are also well-positioned to capitalise on this growth, and he estimates that the MSCI World Mid Cap Index could potentially grow its aggregated earnings in high-single digit terms next year.
“There are themes beyond AI in financials, such as private equity, private credit, global exchanges and financial services, where the leaders in these industry segments continue to grow top lines, grow market share and innovate into new areas,” Mr Abela says. “Companies that can lead with technology, and benefit from an improved industry backdrop, such as Expedia in the travel industry, have been able to improve return profiles and the market has rewarded this with higher multiples.”
Mr Abela says previous concerns about inflation, geopolitical risk, interest rates, consumer confidence, business spending and valuations have eased as companies have delivered reasonable results. “Company earnings results have been particularly strong in areas of technology, industrials, biotech, construction, aerospace and defence, metals and mining and utilities. This performance, across multiple sectors forms the basis of a positive outlook for 2026.”
Mr Abela emphasises that a quality, diversified portfolio is integral to capitalise on the momentum expected in coming years. “It’s important to have exposure to a broad range of industries while maintaining a strong valuation discipline. This helps to create a balanced quality portfolio that can capture the best opportunities supported by structural shifts such as AI.”
