By Paul R. La Monica
The AI trade: Dead or alive?
Some days it's hard to tell. Nvidia delivers blowout earnings and revenue, and what does Wall Street do? Punish the chip maker's stock.
But Nvidia's solid numbers are a green light for at least a couple of market watchers that the AI trade still has legs and that this rally will broaden.
First, the usual suspects.
Nvidia is proof that chip stocks will keep acting like bullet trains as long as their Big Tech colleagues -- Amazon.com, Google owner Alphabet, Facebook parent Meta Platforms, and Microsoft -- keep spending billions on artificial intelligence, said BlackRock strategist Kristy Akullian.
Semiconductors, she points out, are on pace to grow earnings by 56%.
"Within semiconductors, memory chips are showing the most tangible strength, where shortages and pricing dynamics are showing up in results, " Akullian wrote on Thursday.
If that's true, two winners will be Micron and South Korea's Samsung and SK Hynix.
But the winners don't stop there, especially if Akullian is right that the rally will keep broadening.
Industrial names are definitely worth a look. The sector, she said has shown "resilience across core cyclical areas, from heavy machinery and manufacturing to aerospace and electrical equipment, reflecting pickup in investment and infrastructure activity."
The reshoring trend as well as increased spending on infrastructure and data centers should boost demand even more, she said. That helped lift industrial earnings by 17% in the fourth quarter, Akullian noted.
Strong gains by Caterpillar, GE Vernova, Eaton, and Deere, for example, have pulled up the State Street Industrial Select Sector SPDR ETF already this year.
Small-caps, too, are on a roll. Whether they keep gaining will depend on whether earnings growth for smaller companies picks up as well. But others are optimistic.
DataTrek Research co-founder Nicholas Colas is confident they will.
"U.S. small caps were the last piece of the global equity bull market puzzle to fall into place, and they have finally done so in early 2026. After lagging in 2023, 2024, and 2025, they are having their moment in the sun," Colas wrote on Thursday.
That small-caps are shining doesn't necessarily mean that megacaps are tarnished, though. In fact, valuations for Nvidia and others in the Magnificent Seven are finally dropping, a stark contrast to the climbing valuations of sectors that have suddenly gained. Consumer staples is a prime example.
With that in mind, Akullian suggests buying the biggest of the large-caps.
"Investors may want to focus on leading names that continue to show resilience and consistent earnings growth," she wrote.
The iShares Top 20 Stocks ETF -- it has big holdings in Berkshire Hathaway, JPMorgan Chase, Eli Lilly, and Visa as well as the Mag Seven -- is down 3.3% this year and could be a bargain.
And another place to play? Many international markets outperformed the U.S. last year and probably still have momentum.
For Akullian, Korea, Japan and Taiwan are where to look -- particularly because they are home to many chip companies and others with ties to the AI buildout. The weaker dollar is giving them a lift too.
Two of South Korea's big chip plays, again, are Samsung and SK Hynix. But the opportunities don't stop there.
Causeway's Ryan Myers likes South Korea for so much more than chips. His reasons: governance reform and its "industrial depth" outside of semiconductors. That's why South Korea is the largest country overweight position in its emerging markets and international small cap strategies.
Plus, he said, valuations are cheap. South Korean stocks trade for only about 11 times earnings estimates.
Big bank KB Financial, Hyundai Motor and industrial firm Doosan Enerbility are three non-chip names in South Korea. They're all top holdings in the iShares MSCI South Korea ETF and should do well if the broader rally gains even more steam worldwide.
So back to the original question: Is the AI trade dead or alive? For the time being, it most definitely has a pulse.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 26, 2026 15:37 ET (20:37 GMT)
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