Last year, the U.S. stock market was hot again. If you had invested 100 million won in Nvidia in early 2025, your investment profit alone could have reached 40 million won by year-end. Even if you had invested in an S&P 500 index-tracking product, the return is estimated to be over 17%. Investors watching the U.S. market hitting a record high have one question: "Should I increase my allocation even now, or is the U.S. market at its peak now?"
Global investment banks (IBs) are offering a relatively clear answer. They say the upward trend in U.S. stocks is likely to continue in 2026. The assessment is that a large-scale investment cycle led by artificial intelligence (AI) is lifting both corporate operating profit and stock indexes at the same time.
However, it is worth noting that as concerns about an AI overheating theory grow, warnings are also mounting that the pace of market gains will slow. Overseas IBs recommend a portfolio strategy that keeps stocks as the base for increased allocation while also including bonds, commodities, and overseas asset outside the United States.
◇"The AI investment boom will lift the market in 2026, too"
UBS Global Wealth Management (GWM) said in its 2026 outlook report, "AI-driven innovation will remain the key driver of market gains in 2026, following 2025." It analyzed that capital expenditure (CAPEX) spreading to data centers, power, and semiconductors is firmly supporting additional growth in AI-related stocks. UBS sees the S&P 500 rising to the 7,700 level in its base case and to 8,400 in an optimistic scenario.
JPMorgan also said, "The AI supercycle is fueling record capital expenditure and profit growth," noting that the stock rally momentum led by the AI investment boom is spreading beyond tech to utilities, banks, health care, and logistics. It assessed that the U.S. market could maintain an annual gain of 13%–15% over the next two years. Morgan Stanley projected the S&P 500 will climb 14% next year to break above 7,800, outpacing stock gains in Japan (7%) and Europe (4%).
While some raise an AI overheating theory, Goldman Sachs said, "AI investment is only in its early stages." It analyzed that AI investment will expand further as hyperscalers (corporations that operate large-scale data centers required for AI) and countries compete for AI supremacy.
◇Monetary, fiscal, regulatory… a "three-beat" backdrop lifting stocks
The reason optimism for the new year is gaining traction is that the U.S. economy and industry face an unusually favorable environment. The United States is currently seeing easy monetary policy, expansionary fiscal policy, and deregulation work in tandem, lifting the stock market.
The Federal Reserve (Fed) is expected to maintain a rate-cutting stance in the new year. As inflation stabilizes in the 2% range, policy focus has now shifted to jobs. Goldman Sachs said, "If the job market weakens quickly due to immigration limits, federal workforce cuts, and labor substitution driven by AI adoption, additional rate cuts are possible." Of course, if the job market proves more resilient than expected, the pace of rate cuts could be adjusted.
On the fiscal side, tax cut policies are expected to support improved corporate profitability. The Donald Trump administration has signaled corporate tax relief of about $129 billion (about 187 trillion won) in 2026–2027 through the "One Big Beautiful Act." In addition, deregulation focused on finance, energy, and pharmaceuticals is cited as a factor improving the corporate investment environment.
Serena Tang, chief global asset strategist at Morgan Stanley, said, "The three policies of monetary policy, fiscal policy, and deregulation are operating simultaneously in a way rarely seen outside a recession," adding, "Thanks to this unusually favorable policy mix, market attention is shifting from macro anxiety to an 'AI growth story.'"
◇A question from the bond market: "Is the pace of AI investment too fast?"
Of course, it is not all rosy forecasts. Doubts about the pace of AI investment and actual profitability are emerging, centered on credit and equity markets.
Morgan Stanley flagged the expansion of funding by tech companies as a key variable in next year's credit market. It analyzed that, driven by demand for AI and data infrastructure, CAPEX tied to data centers could reach as much as $3 trillion in the long term, but the current execution rate is below 20%. This means AI investment is still in its early stages and that large additional investment will be inevitable.
The issue is that most investment funds are being raised through corporate bond issuance. If corporate bond issuance surges, concerns about excess bond supply grow, the "corporate bond spread," the gap between corporate and Treasury yields, widens, and corporations' funding expense could rise.
Stock market "sorting" is also expected to intensify. Goldman Sachs emphasized fundamentals, saying, "Visibility on return on investment (ROI) relative to investment is not yet clear." Even within the Magnificent 7 (Mag7), stock performance is likely to diverge sharply depending on proprietary technology, real revenue models, and whether they create new markets.
In the end, the bond market is judging AI investment sustainability by "expense," while the stock market is judging it by "profitability," signaling entry into a sober phase of evaluation.
◇"Diversify, don't go all-in"… why IBs stress portfolios
To address uncertainty, the strategy IBs propose is "diversification." Goldman Sachs emphasized, "When asset prices are high, active asset allocation is needed rather than simply tracking the benchmark."
By asset class, the strategies presented include: ▲ increase stock allocation ▲ maintain bond allocation ▲ hold commodities and cash. For stocks, increasing exposure to AI infrastructure such as semiconductors, data centers, power, and servers, as well as AI beneficiary industries such as cloud and software, is recommended. It also advises paying attention to financials, health care, and logistics, which are expected to benefit indirectly from expanding AI investment.
For bonds, selection of composition is more important than expanding allocation. High-yield corporate bonds, which are relatively less affected by large AI-related issuance, could outperform investment-grade bonds. Given the concerns previously noted about the widening of investment-grade corporate bond spreads, differentiation is needed even within bonds.
Commodities can be used as an asset to cushion portfolio volatility. Morgan Stanley said, "Among base metals, copper and aluminum are the most promising as they face supply constraints," adding, "Gold is also likely to remain firm in the new year as physical demand and rate-cut expectations support prices."
◇Expanding portfolios to China and Europe
Another common recommendation from overseas IBs is to increase allocation to regions outside the United States. UBS picked Chinese tech stocks as "among the most promising investment destinations worldwide," projecting related corporate profits to rise 37% in 2026. JPMorgan also analyzed that China could show stronger-than-expected growth in the first half, helped by fiscal execution effects.
On Europe, some point to a CAPEX recovery phase. Goldman Sachs said, "After neglecting investment for the past 20 years, European corporations are increasing investment in capital-intensive areas again, spurred by energy transition, security and defense, reshoring, infrastructure upgrades, digitalization, and AI." In this process, the ratio of sales to capital expenditure is hitting its highest level in 10 years, and European corporations' business strategies are gradually shifting to an asset-intensive structure.
Taken together, global IBs' outlooks lead to a clear conclusion. While investment expansion driven by AI is likely to be the key growth engine for the U.S. stock market in 2026, corrections and volatility are inevitable due to various variables. Ultimately, the strategy investors need is to "bet on AI growth, but do not go all-in on a single scenario."