Ctrl+Alt+De-Risk: Markets Reboot on AI Earnings

Much like the grey skies we have grown used to this winter, the outlook across parts of the US technology sector has also turned overcast in the early months of the year. Until recently, technology stocks had been the market’s clear favourites, supported by strong earnings growth and robust profitability.

However, as Artificial Intelligence has moved firmly into the mainstream, the landscape has begun to shift. AI, once viewed as a specialist niche, is now a central battleground. In that transition, investors have become more selective, reassessing which companies are best placed to benefit and which may face disruption.

This reassessment has contributed to weakness in areas such as software and certain wealth management businesses. Share prices of firms including Salesforce, Charles Schwab and St James’s Place have come under pressure as the market weighs how AI could reshape elements of their models.

By contrast, sectors seen as less exposed to technological disruption have gained ground. Asset-heavy industries such as mining, utilities and energy have performed well, helping support markets like the UK, where these sectors represent a larger share of the index. The UK’s meaningful exposure to defensive areas such as consumer staples and healthcare has also appealed to investors seeking stability.

Heightened geopolitical tensions have further supported aerospace and defence stocks, with Rolls-Royce and BAE benefiting from expectations of increased NATO spending. Meanwhile, mining companies such as Glencore and Fresnillo have been buoyed by strong commodity prices. Record gold and silver prices, alongside rising copper demand linked to AI infrastructure and the energy transition, have provided additional support.

Returning to technology, the largest US technology companies are now investing heavily to build out AI capabilities. Alphabet, Amazon, Meta and Microsoft are expected to commit substantial sums to AI-related infrastructure in 2026. While this level of spending underscores the scale of the opportunity, it also raises questions about returns.

Markets are scrutinising whether today’s investment will translate into sustainable profitability. As a result, share price reactions have become more volatile, even when results are strong. Nvidia, for example, recently beat earnings expectations comfortably, yet its share price declined as investors focused on future margins and competitive pressures rather than headline numbers alone.

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