Pi gev 3q26

Global Equity Views Themes and implications from the Global Equity Investors Quarterly

Author In brief • We are seeing strong earnings growth around the world, fueled by massive artificial intelligence (AI) investment spending. Our profit forecasts have climbed again in recent weeks, led by the chief beneficiaries of all that spending. Strong capital markets and the jump in energy prices also play their part.

Paul Quinsee • Overall markets have moved more or less in line with earnings, and Managing Director and valuations don’t look excessive. The boom is in earnings, not multiples. Our Global Head of Equities investors expect moderate returns, with enthusiasm over the strength of corporate profitability tempered by speculative activity in many markets. • With long-term value now evident in the so-called “AI losers” and in many defensive stocks far from the AI boom, there are plenty of opportunities for us to balance portfolios. With indices increasingly concentrated in technology, diversification is more important.

Taking stock The dominant feature of the investment landscape in 2026 remains the remarkable boom in AI investment spending, which has comprehensively trumped both geopolitics and central bank policy as a driver of equity returns. Our analysts see data center investment spending of USD 1.6 trillion this year, more than three times the level of just two years ago. Optimists see as much as USD 8 trillion 5 years from now. With no letup in enthusiasm for AI investment in sight, we can see the total spend topping USD 3 trillion in 2028. So far, every revision to this forecast has been upwards (Exhibit 1).

AI enthusiasm is spurring a huge investment boom Exhibit 1: Total datacenter capex spend (USD billions) 4.0 $3.5 3.5 $3.4

USD (trillions) 2.5 2.0 $1.6 1.5 1.0 $0.7 $0.4 0.5 $

Source: J.P. Morgan Asset Management; data as of June 2026.

As optimism rises, so do the risks. These include: an of profits at some point. Thus many of these stocks increasing reliance on debt markets rather than cash look quite expensive from a longer-term perspective, flow as funding for all this spending; the significant even when trading on single digit multiples of near- challenge of physical constraints such as power term earnings. Meanwhile fear over the disruptive supply; growing popular opposition to data centers; and destructive impact of all this new AI capacity on and (for us the biggest risk) uncertainty over the the profitability of existing businesses, especially in trajectory of prices for tokens. We will be carefully software but also across many other industries, has led monitoring all these issues. to some very attractive long-term returns on offer in the so-called “AI losers” cohort (Exhibit 2). But for now, the boom continues, driving huge forecast revisions not just in technology but for many industrial Identifying the genuine opportunities here, and balancing companies too. The AI boom and the associated market portfolio exposure between short-term winners and gains have also spurred a powerful capital markets potential long-term value are the key dynamics in cycle. Overall, we see U.S. profits jumping 27% this portfolio construction across many markets. year and another 22% in 2027. To put that into context, Regionally, the differences in the opportunity set are back in January we expected just 14% growth this year. less noticeable. It’s really all about AI, wherever you Globally, the picture is even stronger in the emerging look. In our research work, the U.S. market now offers markets where earnings will rise a running 65% in 2026 very similar returns to other markets, as our expectation and another 22% next year. of faster long-term U.S. earnings growth justifies It is hard to recall such a sudden acceleration in overall persistently higher valuations in U.S. markets, as we profitability outside a recovery from recession, and have seen for the last 15 years. today’s profit story is very different. While we have seen Emerging markets still offer plenty of growth, too, a broadening of growth from the so-called Magnificent but their valuations no longer look as tempting as Seven, almost 75% of the profits expansion in the…