Can the 2025 Market Momentum Continue into 2026? AI and Global Diversification as Keys to Sustained Equity Performance

The equity markets of 2025 have been defined by two powerful forces: the explosive growth of artificial intelligence (AI) and the resurgence of global diversification. As investors look ahead to 2026, the critical question is whether this momentum can be sustained-and what strategies will best position portfolios for the challenges and opportunities ahead. Drawing on recent data and expert insights, this analysis argues that AI-driven growth and a disciplined approach to global diversification will remain central to equity performance, but their success will depend on balancing innovation with resilience.

AI-Driven Growth: A Catalyst for Sustained Expansion

AI has emerged as a primary engine of economic and market growth in 2025. In the United States, AI-related capital expenditures contributed 1.1% to GDP growth in the first half of the year, outpacing traditional drivers like consumer spending. This surge in investment-particularly in generative AI-has fueled a 18% annualized growth rate in AI-related business investment, translating to a 1 percentage point boost in Q2 GDP. Such momentum has elevated growth stocks, which have outperformed value stocks in 2025, supported by robust delivery on high expectations for productivity gains.

The implications extend beyond the U.S. Emerging markets have also benefited from AI-driven demand, with favorable macroeconomic conditions amplifying equity performance. However, valuations in these markets remain undervalued relative to developed peers, suggesting untapped potential. Looking ahead, AI is expected to dominate headlines in 2026, both as a transformative force and a source of volatility. The key challenge will be distinguishing between sectors that can sustain AI-driven growth and those that may face overvaluation risks.

Global Diversification: A Balancing Force

While AI has been a standout performer, global diversification has proven equally vital in sustaining equity momentum. In 2025, international stocks delivered their strongest returns relative to U.S. equities since 2006, a trend J.P. Morgan Global Research anticipates will continue into 2026, with double-digit gains projected for both developed and emerging markets. This shift reflects a broader realignment of capital toward regions and sectors underappreciated during the AI boom.

Yet, the market remains polarized. AI-driven sectors have seen record capital expenditures and earnings expansion, while non-AI sectors lag. This divergence underscores the need for a balanced approach. Morningstar recommends global diversification as a contrarian strategy, emphasizing the potential of non-U.S. markets and the importance of hedging against AI concentration risk. For instance, investors are advised to pair AI exposure with value stocks, small-cap equities, and international markets to mitigate volatility.

Strategic Implications for 2026

The dual forces of AI and diversification suggest a nuanced investment strategy for 2026. First, AI's supercycle is unlikely to wane, but its impact will vary by sector. Investors should prioritize companies with scalable AI applications and strong cash flow generation, while avoiding speculative plays. Second, global diversification offers both risk mitigation and growth opportunities. Emerging markets, in particular, present compelling valuations and structural tailwinds, provided macroeconomic stability is maintained.

However, sustainability will require vigilance. Policy shifts, regulatory scrutiny of AI, and macroeconomic headwinds could disrupt the current trajectory. A disciplined, adaptive approach-leveraging AI's upside while diversifying across geographies and sectors-will be essential to navigating 2026's uncertainties.

Conclusion

The 2025 market momentum, driven by AI and global diversification, has laid a strong foundation for 2026. Yet, sustaining this performance will demand a careful balance between innovation and resilience. By aligning with AI's transformative potential while embracing a globally diversified portfolio, investors can position themselves to capitalize on the opportunities ahead while managing the inherent risks.