Fidelity Outlook 2026: Who will bring the pick and shovel to artificial intelligence?

The changes brought about by new technology will be as dramatic as the Internet revolution of the 1990s. Among the leaders of the U.S. tech sector are companies that have the resources to make the necessary investments. Fidelity says AI should be seen in the context of the broader AI business: the question is not whether AI is a bubble, but whether current hyperscalers, including those generating hundreds of billions of dollars in cash and trading at multiples of more than 20x, are bubbles.

Investors sense the potential for huge profits in the air during times of major industrial and technological change. They can do this by getting behind the first movers, the leaders of new or revolutionized industries, and the companies that deliver the essential tools of this generation—picks and shovels, to use the gold rush analogy. But the future is highly uncertain, so it’s important to pinpoint who the real winners will be. Many ideas, projects and companies are getting funded, and valuations have been broadly higher, but not all companies will generate the results and cash flow to back this up.

According to Fidelity analysts, the general sentiment is good, and market valuations reflect this. In early November, the S&P 500 index was trading at a forward P/E ratio of just 24 times, which has historically occurred in just 5 percent of the time.

Technology and consumer discretionary stocks are looking even more extreme. In the technology sector, however, there are strong signs that growth prospects are improving: while a year earlier only a quarter of analysts surveyed by Fidelity believed it was likely that AI would improve profitability in 2025, this proportion has now doubled.

At the same time, experts highlight the weakness of US consumer demand as the most important problem for the coming year. If AI becomes a viable business model for more companies, it will lead to productivity gains that are hard to imagine without job cuts.

While consumer staples and non-staples account for only 21 percent of the S&P 500, compared to 46 percent for technology and communications, American consumers still account for nearly 70 percent of US GDP, so weakness in this area could have multiple impacts.

Will the capital gains from the stock market rally and the significant investment in technology be able to offset these effects?

In light of all this, the answer seems to be yes: the market is now on a solid footing with real content and optimism. Fidelity expects earnings growth of 5-8% in 2025 to strengthen to double digits in 2026 in all major regions studied, with earnings growth of up to 25% expected in the IT sector. However, this does not make diversification any less important, especially in an environment where political and regulatory factors can trigger actual capital movements.

The case for Europe has strengthened considerably. Falling inflation, lower interest rates and fiscal support all provide a favorable backdrop for corporate investment and consumer confidence. Aerospace and defense stocks benefit from European rearmament.

“However, one should not draw conclusions about the region’s economy as a whole based on European companies. These are global businesses with both a stable and resilient balance sheet and growth profile,” said István Al-Hilal, CEE director at Fidelity International.

China is increasingly resembling the US market in terms of companies’ technological and innovative development, while valuations are lower and positioning is less crowded. In Japan, rising wages, growing consumer spending and corporate governance reforms are contributing to the region’s optimism.

While there is ample reason for concern, it is already clear that