AI Spending, Credit Risks and an Energy Boom: Why 2026 Could Be Pivotal for Investors

Wall Street’s rally may be intact, but beneath the surface the market’s leadership is shifting — and new risks are emerging in places many investors rarely look according to Brian Mulberry, Chief Market Strategist at Zacks Investment Management.

“Q1 earnings so far, still better than expected. We’re seeing 12% to 13% earnings growth on the S&P 500,” Mulberry said in an interview with AInvest . That earnings backdrop, he noted, supports “a positive year in stocks overall.”

Mulberry says 2026 is shaping up as a year of rotation, volatility and structural change rather than another smooth ride higher and what appears to be driving gains is evolving. “What was driving the market over the last couple of years is not likely to be the same upward momentum,” he said, describing a broadening beyond the narrow mega-cap technology leadership that dominated the prior cycle .

From AI Momentum to AI Anxiety

Artificial intelligence remains central to the story — but investor enthusiasm is becoming more complicated. “AI momentum has certainly turned into AI anxiety in the moment,” Mulberry said .

Major hyperscale technology companies are expected to collectively spend hundreds of billions of dollars on AI-related capital expenditures this year. Industry analysts have estimated AI infrastructure spending could approach roughly $600 billion to $650 billion globally in 2026, as companies race to expand data center capacity and computing power.

Mulberry framed the key investor question bluntly: “When does that money come back… and will it be profitable after having spent that much money to try and grow AI computing power?”

Compounding those concerns are labor-market fears. Mulberry pointed to research suggesting rapid AI adoption could pressure white-collar employment, fueling volatility. “That’s exactly the anxiety — that bots are going to replace jobs and the unemployment rate could go substantially higher,” he said.

Yet he cautioned that technological adoption faces physical constraints. “We don’t have the level of computing power available in order to support that much AI adoption… right now,” he said . Data centers and grid infrastructure must expand dramatically before AI can scale at the pace some fear.

The Energy Trade Hiding in Plain Sight

That infrastructure bottleneck may be creating one of the market’s most under appreciated opportunities. Mulberry called energy “one of the best performing sectors year to date inside the S&P 500” , driven in part by power demand tied to AI data centers. Utilities and generation companies — sectors not typically associated with high growth — are seeing renewed investor attention.

“The amount of investment that’s being made just to have the available electricity to fund both the AI data center load, but also the regular consumer activity, is going to be important,” he said .

He highlighted opportunities not just in traditional utilities, but in AI-adjacent industries such as turbine manufacturers and copper producers needed for grid expansion. “There’s all of these little AI-adjacent pockets in this market that’s adding to that broadening effect,” Mulberry said .

Industry data supports the trend: utilities and energy infrastructure firms have reported increased capital expenditure plans tied to grid upgrades and data-center power demand, while copper prices have reflected expectations of tighter supply amid electrification and AI-driven buildouts.

A Quiet Risk in Private Credit

While investors focus on AI, Mulberry says another risk is building more quietly in private credit markets. “In that private credit universe you really don’t know what you own,” he said, warning about opacity in portfolios that hold fractional exposures to illiquid corporate debt.

He pointed to rising stress beneath the surface of the economy. “We had almost 1,000 large public bankruptcies last year. That’s double the normal average,” he said.

The danger, according to Mulberry, is not immediate collapse but mispricing. “The overall credit quality could be substantially different from what they’re saying in terms of their mark-to-market valuation,” he noted.

Expect Gains — and Volatility

For broad-market investors, Mulberry remains cautiously optimistic. With earnings projected to rise around 10%, he sees a 7% to 9% gain in the S&P 500, potentially lifting the index into the low 7,000 range. But volatility is likely to return in force. “The average intra-year drawdown is between 18% and 20% over the last 75 years,” he said , warning that uncertainty surrounding AI leadership, credit conditions and sector rotation could make that historical pattern relevant again. "Uncertainty means volatility,” Mulberry said.