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After a year dominated by tech strength, we have already started to see a broadening in terms of demand for stocks throughout the US markets.
The jitters seen for big tech in the fourth quarter were largely centered around valuations and Michael Burry’s spotlight on the depreciation timeframes being attached to major AI architecture spending.
While those fears appear to have blown over for now, the perception that we will see a slowdown in the rate of growth for big tech means many are looking elsewhere for their growth narrative.
The most obvious winners from the AI trade have already gathered plenty of momentum, and thus the gains seen for US markets are becoming more widespread.
However, while some see this as a confidence over the direction of travel for the US economy, it also looks like a case of investors seeking to diversify their portfolios given the inherent risk that the AI trade blows up at some point.
The latest TSMC earnings do highlight a continuation of the outperformance seen for the rest of 2025, and thus there is a strong chance that earnings season brings a fresh bout of optimism as long as the tech gravy train continues to roll-on. However, the unpredictable nature of Donald Trump does mean that investors will seek to diversify away from the US too, with the weakness of the US dollar providing another incentive for international investors to look further afield in 2026.
While the tech sector remains a key risk given its huge weighting and substantial gains over recent years, the AI revolution remains in its infancy. We are likely to see continued jitters, but the end of this boom will be hard to time. In all likeliness, any eventual crash will essentially serve to take the heat out the market, with investors swiftly bidding up the AI winners once again. While we have seen some strength in other parts of the market which are based on expectations, the sheer size of the tech sector means that it remains the one area that could take the entire market down with it.
As an investor, the job of mitigating risk while also ensuring you do not miss out on a generational tech boom can be difficult. The broadening seen within markets of late highlights how the future could be more even in nature as investors take tech-profits and redistribute into a less concentrated portfolio. Risks always remain a key concern for investors, but there is also a risk to not being invested at all. Fortunately, the antics of Donald Trump means that we are seeing a huge push higher for commodity prices and defense names, providing fresh narratives for those seeking new areas to invest in.
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