Earnings growth supports a constructive outlook for equities, with AI disruption and high levels of dispersion making diversification and careful stock selection essential.
We remain constructive on global equities, supported by a positive outlook for earnings growth – even amid ongoing geopolitical uncertainty. However, high dispersion defines today’s markets. The artificial intelligence (AI) buildout is driving outsized gains for beneficiaries while placing pressure on areas perceived to be on the flip side of this dynamic. Beyond the AI theme, we see opportunities that reinforce the importance of diversification and, above all, selectivity.
A broader perspective on valuations
Markets have largely looked through the impact of geopolitical events and associated uncertainty, with some indices – notably US-based ones – reaching all-time highs. The AI theme continues to drive significant dispersion, with data centre investment emerging as a key growth engine that is powering dominant performers.
Industry leaders are benefiting from substantial capital expenditure, with around $3.5 trillion expected by 2030. While valuations may appear elevated, our view is that continued investment combined with supply constraints should provide ongoing support.
Rising dispersion within the AI theme
AI stands out as the primary driver, but divergence within technology is set to persist as investors rotate towards beneficiaries and move away from those exposed to disruption. In this environment, stock selection – not broad allocation – is key to capturing opportunity.
Figure 1: AI adoption kicks into high gear
AI adoption rate next 6 months by number of companies
Source: Columbia Threadneedle Investments, Bloomberg as of 3 May 2026. Planned: US Census BTOS AI Adoption Rate Next 6 Months Firm Size 250+ Emp. Current: US Census BTOS AI Adoption Rate Last 2 Weeks Firm Size 250+ Emp.
Software and data-led companies are increasingly viewed as vulnerable to disruption from agentic AI. While valuations have become more attractive and some concerns may be overstated, uncertainty around their long-term earnings power remains. As a result, we remain cautious on reallocating capital until greater clarity emerges.
Opportunities beyond AI – patience is required
Performance in some segments of the ‘non-AI’ portion of the market has been relatively subdued. However, attractive valuations are emerging in financials and energy, along with select entry points in other areas, although value realisation may take time.
A resolution to energy price pressures would help unlock broader opportunities. For now, patience is warranted.
Robust earnings drive constructive outlook
We entered 2026 expecting low double-digit earnings growth at the upper end of consensus. So far, results have reflected stronger projections and resilience despite the geopolitical headwinds, and our analysis points to continued momentum through year-end. Among US large caps, for example, we forecast earnings growth in the low- to mid-teens. However, this strength remains concentrated, with a handful of high performing mega caps continuing to distort the aggregate – reinforcing the importance of individual stock selection when constructing portfolios.
Beyond the AI thematic, the anticipated broadening of profitability has yet to fully materialise, though there are encouraging signs in areas such as machinery and industrials. In Japan, momentum is extending beyond AI into factory automation, trading companies and electronics. Increasingly, capital-intensive sectors – notably industrials and electrical equipment – are emerging as quality opportunities, offering high barriers to entry and a potential counterbalance to more challenged segments such as software.
Earnings growth across technology and related sector companies remains robust, with substantial upgrades among chipmakers and hardware suppliers. Strong incumbents continue to enjoy pricing power amid firm demand and tight supply, which in turn translates into higher margins and earnings. We expect this momentum to persist, underpinning our overweight positioning in these areas.
Figure 2: Earnings surge in 2026
Regional EPS growth forecast
Source: Columbia Threadneedle Investments, Macrobond as of 12 April 2026.
Our expectation of continued earnings strength supports equity allocations, with earnings per share (EPS) forecasts revised higher across many regions. However, elevated dispersion underscores the case for a more selective approach to portfolio construction.
In this environment, active investing provides the flexibility to access beneficiaries of the AI theme and capital-intensive infrastructure trends while managing exposure to segments where earnings risks, including disruption and softer consumer demand, remain elevated.
Diversification delivers – and remains critical
Diversification remains critical, with pronounced divergence across (and within) sectors, factors and the market-cap spectrum. At the sector level, events in the Middle East have driven energy to outperform independent of the AI narrative. Meanwhile, ‘old economy’ sectors such as construction, materials and engineering are benefiting from their linkage to the AI infrastructure theme. From a style perspective, large-cap value has outperformed large-cap growth.
Figure 3: The technology earnings engine
Earnings are strong, but primarily driven by technology
EPS blended 24 months (%)
Source: Bloomberg, as of 30 April 2026. Semis represented by SOX Index (Philadelphia Stock Exchange Semiconductor Index) & includes companies that are not in S&P 500. Best EPS blended 24 months.
Across the market-cap scale, larger companies have outperformed, though aggregate performance continues to be skewed by the outsized contribution of technology giants (see chart). Smaller companies should not be overlooked – many offer access into cyclical opportunities and can complement technology weightings within the broader AI ecosystem.
From a geographic perspective, we highlighted the appeal of Europe heading into 2026, supported by fiscal expansion. While the theme remains intact, elevated energy prices are subduing near-term prospects. The case for regional diversification remains strong, with Japan’s transformation ongoing and emerging markets gaining traction. Within emerging markets, however, we sound a note of caution around concentration risks at both the individual company and industry level.
Focus on the fundamentals to navigate risks
Our outlook remains constructive, but risks persist. Geopolitics and unforeseen events consistently pose challenges, reinforcing the importance of balance, diversification and selectivity in navigating uncertainty.
AI is likely to remain the dominant market driver, with a small group of hyperscale companies shaping earnings outcomes. Potential bottlenecks in construction and energy may, however, constrain the pace of development.
Inflation remains a key uncertainty, with implications for central bank policy, corporate cost structures and consumer spending. We are also monitoring signs of pressure among lower-income consumers. Overall, however, we believe the risk/reward balance is skewed to the upside.
The bottom line
Looking ahead, equity markets are poised to make further progress, although geopolitical uncertainty and volatility are likely to persist. Trade, inflation and interest rates remain risks to watch, while further supply chain disruption, persistent inflation and tighter monetary policy could unsettle near-term sentiment. However, it is the expectation of continued earnings growth that drives our optimistic assessment from here.
Against such a backdrop, we emphasise anchoring investment decisions in underlying fundamentals, with a focus on company cash flows and profitability. Ultimately, long-term outcomes will be driven by the ability to identify and back high-quality, attractively valued companies.
