Growth in a Fractured World: Capitalizing on Divergent Market Paths

Market dynamics have become increasingly fragmented in late 2025, with growth patterns diverging sharply across sectors and regions.

Technology stocks face mounting pressure from valuation reassessments and skepticism over AI investment returns according to market analysis, while value-oriented industrial and "real economy" sectors gain traction amid Federal Reserve rate cuts and a shift in investor priorities toward fundamentally sound, cash-flow-driven businesses. This contrast reflects broader uncertainty driven by sticky inflation and mixed economic signals.

Emerging markets (EM) are poised to outperform developed peers, with Goldman Sachs forecasting the MSCI EM index to rise 8% to 1,480. Earnings growth in these markets is projected at 9% in 2025 and 14% in 2026, particularly in AI-driven regions like South Korea, China, and Taiwan. However, this strength masks divergences, as Indian equities lag due to high valuations and regulatory headwinds.

Meanwhile, cross-sector IT spending is set to rise 9.3% through 2028, fueled by AI adoption and cloud transformation. However, lingering macroeconomic uncertainties and supply chain diversification efforts pose challenges to sustained growth. Within IT, AI investments are expected to grow at a 29% compound annual growth rate (CAGR) through 2028, driving innovation in generative AI and hybrid cloud solutions.

These divergences highlight a landscape where selective optimism coexists with persistent risks, requiring investors to navigate both opportunities and frictions carefully.

Growth Engines: Penetration, Learning & Scalability

Building on earlier insights into market research trends and financial results, scalability hinges on three interlocking dynamics.

Generative AI adoption is accelerating, reshaping enterprise spending as 61% of investors prioritize technology investments over the next three years. Productivity gains from AI infrastructure growth-highlighted by leaders like Nvidia and Google-drive this momentum. Yet, transparency gaps persist: only 37% of investors find current AI disclosures sufficient, while 88% urge increased cybersecurity spending. These frictions underscore the tension between rapid adoption and operational readiness.

Emerging markets tech sectors are poised for 9% earnings growth in 2025 according to Goldman Sachs forecasts, fueled by AI demand and structural reforms. South Korea, China, and Taiwan lead gains, while Indian equities face headwinds from premium valuations and regulatory hurdles. This divergence reflects broader EM trends but introduces segmentation risks for global portfolios.

Regulatory fragmentation is inflating compliance costs, with heightened focus on AI governance and cybersecurity resilience. Firms face divergent standards across regions, amplifying reputational and operational risks. Investor surveys reveal 55% exposure to cyber threats, compounding challenges for organizations navigating cross-border regulations.

While AI penetration and EM growth present scalable opportunities, execution risks linger. Regulatory frictions and transparency gaps demand disciplined risk management. For investors, the path forward favors firms balancing innovation with robust compliance frameworks-where penetration rates translate into sustainable scalability.

Risk & Execution Guardrails

The impressive momentum in tech investing faces several guardrails that could temper near-term enthusiasm. Regulatory fragmentation represents a growing cost burden, with 2025 set to see heightened scrutiny on AI governance, cybersecurity, and financial crime compliance across global markets. Divergent rules, especially regarding AI innovation and antitrust enforcement, are pushing firms toward more complex and expensive risk management frameworks to navigate this regulatory intensity and avoid reputational damage.

Cybersecurity emerges as the most acute investor concern, with 55% of survey respondents flagging high exposure to cyber risks. While investors overwhelmingly prioritize technology (61%) for future growth, driven by AI productivity gains, this optimism coexists with significant transparency gaps. Only 37% of investors feel current disclosures on AI strategies and cybersecurity measures are sufficient, despite 88% urging companies to increase spending in these areas. This disconnect could translate into heightened scrutiny and potential reputational pressure if firms fail to meet rising expectations on protecting digital assets and clearly communicating AI integration.

Emerging markets offer strong potential, yet valuation concerns loom over specific regions. Goldman Sachs forecasts EM equities and currencies to outperform in 2025, with the MSCI EM index projected to rise 8% and earnings growth reaching 9%. However, this aggregate strength masks underlying challenges. Indian equities, for example, are expected to lag their peers due to high valuations that limit upside potential, despite the broader sector's 9% earnings growth. Investors must weigh the overall EM growth story against sector divergences and region-specific valuation headwinds.

Investor priorities further complicate the picture. While 61% see technology as the top investment sector over the next three years, global growth expectations remain cautiously tempered, with only 28% anticipating moderate improvement. This cautious optimism persists alongside strong demand for transparency, particularly around AI and cybersecurity. Firms navigating this landscape must balance aggressive tech adoption with clear communication and robust security measures to align with investor demands and mitigate potential friction.