Equity market outlook | BlackRock
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Equities displayed resilience in the first half of the year, intermittently fazed but ultimately pushing past geopolitical uncertainty and periodic questions around the pace and trajectory of AI-related investment.
It’s not unreasonable to approach the second half of 2026 with healthy doses of optimism and vigilance.
We remain constructive on the long-term AI opportunity and continue to identify potential beneficiaries across what we see as a multi-year investment cycle. At the same time, we recognize the importance of diversification. We see value in broadening our focus to other areas of the global markets and discuss the possibilities in our Q3 Equity Market Outlook.
We continue to see scope for ample opportunity ― in both the AI theme and in areas well beyond it across global equity markets.
As the AI theme grows more nuanced, investors are challenged to look beyond prevailing market and factor trends to anticipate where the next opportunities may emerge beneath them.
This is where insights matter. Our systematic analysis shows some of the most differentiated insights have come from signals that identify linkages across companies, industries and markets. This has become more relevant as the AI buildout has scaled and leadership has extended beyond first-order beneficiaries. Company outcomes are less about their sector or geography and more about the role they play in the investment cycle. Applied through this lens, we see some of the strongest opportunities emerging in more discrete expressions within the infrastructure, power and industrial layers supporting the AI buildout.
Free cash flow (FCF) is an important signal of business strength and, we believe, worth exploring to find equity diversifiers in an AI-driven market. Applying this lens leads us to opportunities in the energy, materials and healthcare sectors.
The current energy cycle could be elongated, in our view, given massive demand for power from the AI data center buildout and a reshaping of the global supply chain amid recent geopolitical events. The story is similar in materials, where a global desire to keep essential resources close to home is setting up a highly competitive landscape for an acutely short supply of natural resources. Meanwhile, the healthcare sector shows historically high FCF margins. Healthcare equipment is a particular area of interest for its compelling valuations and low correlation to AI.
One of the biggest constraints on AI development is energy and the infrastructure needed to deliver it, creating compelling opportunity in the companies that are best placed to both produce this power and get it to where it’s needed.
Our active investors believe large parts of the listed infrastructure universe could benefit from the AI-driven surge in electricity demand. As utilities spend on new sources of power to meet rising demand, this leads to larger long-term revenues (at prices set by national regulators) and potential for accelerating earnings growth. At the same time, utilities retain their defensive characteristics, meaning they may provide a measure of resilience in periods of market uncertainty.
Asia may be an underappreciated AI beneficiary as it is home to several large companies that are feeding into the AI supply chain. A portion of AI investment from the big U.S. tech companies is flowing to the large Asian makers of the semiconductors needed for AI expansion.
Beyond chips, some of the world’s leading memory providers reside in Asia, as do several companies that are key to the expansion of global power infrastructure. Shortages of both memory and power have led to strong earnings growth for companies that operate in these areas. Cooling is another critical input for energy-intensive data centers, and greater chip power means an increasing shift from air to liquid cooling. This need is also being filled in Asia, where leading-edge companies are adopting next-gen cooling systems that enable greater computing power in the same space.
Company earnings have been strong, with consensus analyst estimates suggesting an outlook for continued strength globally. This helped stocks to push past geopolitical uncertainty and intermittent anxiety around AI in the first half of 2026. As Q3 begins, our active equity investors are both optimistic and vigilant. They are monitoring shifts in AI momentum in seeking new and underappreciated expressions of the AI theme while also looking for ways to diversify equity portfolios within and outside of this market-shaping mega force.
Our investors begin the second half of 2026 with a constructive outlook for equities. Earnings trends have been strong across sectors and geographies, supporting the case for exploring a larger cross-section of investment themes. At the same time, volatility is likely amid ongoing geopolitical uncertainty and high investor expectations. While unsettling, volatility also may create opportunities. They see these opportunities in both the AI theme and in areas well beyond it across global equity markets, suggesting a favorable backdrop in which to invest.
Our active equity investors believe it’s possible to capture some of the AI upside with potentially less of the volatility that comes with high valuations and market concentration in the prevailing leaders. One way is to increase exposure to the infrastructure and power investment that is needed to facilitate the AI boom and the broader shift toward electrification that AI has accelerated. Energy and the infrastructure needed to deliver it are among the biggest constraints on AI development. For this reason, they see compelling opportunity in the companies that are best placed to both produce this power and get it to where it’s needed.
Our investors identify parts of Asia as attractive for their contribution to the AI buildout. Much of the enormous AI investment from the big U.S. tech companies is flowing to the large Asian makers of the semiconductors essential for AI expansion, as well as the supply chains that have developed around these giants. They also highlight constraints in the memory and power needed for AI proliferation, citing Asia as home to some top memory providers as well as companies that are key to the expansion of global power infrastructure.
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