BlackRock’s Fundamental Equities International Chief Investment Officer Helen Jewell suggests that as the AI narrative continues to inflate tech giant valuations, investors seeking steady positioning in 2026 might benefit from looking beyond the AI frenzy—with opportunities potentially hiding in plain sight.
Currently, U.S. equity valuations appear stretched, with the S&P 500’s Shiller P/E ratio exceeding 40x—approaching levels seen during the dot-com bubble. Market concentration has also reached staggering heights. Goldman Sachs data shows the combined market cap of the five largest U.S. tech giants—Nvidia (NVDA.US), Apple (AAPL.US), Google (GOOGL.US), Microsoft (MSFT.US), and Amazon (AMZN.US)—now surpasses the Euro Stoxx 50 and exceeds the combined market cap of the UK, India, Japan, and Canada.
Amid this backdrop, skepticism over the AI-driven rally has emerged, with the CBOE Volatility Index (VIX) spiking sharply in recent months. Yet, outside U.S. tech, many markets and sectors delivered solid returns in 2025—and Jewell believes several could sustain this momentum into next year.
**Looking Beyond the U.S.** The U.S. was not the star performer in 2025. Measured in local currency terms, the world’s largest equity market ranked just 20th by year-to-date returns as of early December, while South Korea and Spain led the pack.
Jewell notes investors need not confine themselves to the U.S. for double-digit returns. Goldman data reveals 84% of global markets posted gains exceeding 10% over the past 12 months. International equities could continue outperforming in 2026.
Europe may benefit from improving economic activity. Eurozone loan growth has rebounded steadily, and the composite PMI remains firmly above 50, signaling expansion. Germany’s fiscal stimulus and broader European defense spending could further fuel cyclical growth next year, supporting sectors like trucking and mining equipment. A stable euro-dollar exchange rate may amplify these gains.
In Japan, benign inflation and corporate restructuring—with firms streamlining operations to focus on core businesses—should continue boosting profitability and shareholder returns in 2026. A newly passed $117 billion supplementary budget will also provide fiscal support. Notably, Japan may be the only major economy raising rates next year, a move likely to benefit banks without significantly hampering growth.
Emerging markets stand to gain from a weaker dollar, declining global rates, and supply chain realignment amid trade tensions and geopolitical shifts, underpinning corporate earnings.
**Sector Opportunities Beyond Tech** Similar logic applies across industries. Over the past five years, European banks outperformed the "Magnificent Seven" U.S. tech stocks by 40 percentage points (in local currency terms), with no bubble concerns. The sector still trades below historical averages, and BlackRock estimates European banks will return ~24% of their market cap via dividends and buybacks over three years.
Healthcare, a defensive sector resilient to economic cycles, has lagged but historically delivers stable earnings growth even during downturns. Currently, healthcare stocks trade at a 28% discount to global markets—a level seen only twice in 30 years, after which the sector rallied over 20% within 12 months.
Even within AI, investors can avoid overpaying. Surging power demand for AI highlights opportunities in clean energy and grid infrastructure, with utilities powering data centers trading below market multiples.
"AI exposure doesn’t have to come at a premium," Jewell says. "While the AI boom may intensify in 2026—especially as efficiency gains translate into earnings—elevated valuations could keep markets on edge. For those seeking to reduce risk, high-quality alternatives abound."
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