277. Global Equity Markets: Can the Stock Market Rally Continue Beyond AI?
Full episode Description:
Global equity markets have delivered strong returns in recent years, fueled by corporate earnings growth, the expansion of artificial intelligence, and trillions of dollars in technology investment. But with a relatively small group of companies accounting for much of the US stock market's performance, questions are emerging about market concentration, the sustainability of the AI rally, and the opportunities that may exist beyond technology. As investors assess the outlook for global equities, could the next phase of market growth look different from the last?
In this episode of The Bid, host Oscar Pulido is joined by Carrie King, Global Chief Investment Officer of Fundamental Equities at BlackRock, and Alex Brazier, Global Head of Investment and Portfolio Solutions at BlackRock, to explore what's driving global equity markets and how investors are approaching diversification. Together, they examine the relationship between corporate earnings and stock market returns, the scale of investment in AI infrastructure, and the changing dynamics influencing equity valuations across regions and sectors.
Key insights from this episode:
Why corporate earnings matter: How earnings growth, rather than higher valuations alone, has supported the strength of U.S. stock market returns.
How AI investment is reshaping markets: Why spending on data centers, cloud computing, power, and infrastructure is influencing corporate performance and capital markets.
Why market concentration matters: How the dominance of AI-related companies is prompting investors to reassess their exposure across global equities.
Where diversification opportunities may emerge: Why healthcare, transportation, logistics, and other sectors are attracting attention beyond the AI trade.
How emerging markets fit into the picture: Why investors are approaching markets such as Taiwan and Brazil through different investment themes.
What investors are weighing next: How market volatility, interest rates, investment horizons, and portfolio construction are shaping decisions.
Keywords: global equities, stock market trends, AI investing, portfolio diversification, market concentration, corporate earnings, emerging markets, capital markets
Sources: Bloomberg as of Oct 2026; Fundamental Equities analysis with monthly data from FactSet measured from Nov. 30, 2022, to Sept. 30, 2026; BlackRock Fundamental Equities Global Technology team, September 2026.
Written Disclosures In Episode Description: This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures.
<<TRANSCRIPT>>
Oscar Pulido: Over the past three years, U.S. stocks have delivered a remarkable run of strong returns, supported by corporate earnings, enthusiasm around artificial intelligence, and significant investment in new technologies. But with a handful of companies driving much of the market's performance, investors are increasingly asking whether this momentum can continue and what opportunities might exist beyond the biggest names in US technology. So, what's really driving stock markets today? Are corporate earnings keeping pace with investor expectations? And as AI reshapes the investment landscape, where else around the world might investors find opportunities for growth and diversification?
Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
Today, I'm joined by Carrie King, BlackRock's Global Chief Investment Officer of Fundamental Equities, and Alex Brazier, Global Head of Investment and Portfolio Solutions at BlackRock. Together, we'll explore what's behind the recent strength in equity markets, how investors are thinking about AI and market concentration, and where opportunities may be emerging across global equities as we look toward year-end Alex and Carrie, thank you so much for joining us on The Bid.
Alex Brazier: Really great to be back with you, Oscar.
Carrie King: Thank you, Oscar. It's nice to be here.
Oscar Pulido: And it's great to have you both on. I've spoken to both of you individually, but we've never had you both together on the same episode, and I'm excited about the expertise that sits between the two of you in terms of markets, and we're going to talk equities a little bit more specifically. Alex, you and I last spoke, it was before the summer, and we were talking, to yourself and to Sam Vecht about emerging markets. there's been a lot happening in equity markets since then, so what are some of the key themes that you're hearing from investors over the last few months?
Alex Brazier: It feels like about 100 years ago that we last spoke about these things. what are we hearing? The background context is that the market globally is up about 13% year to date, pretty respectable, but it's chopped sideways since early August,
We've been surveying lots of investors since then to ask about their sentiment and their plans. And their sentiment, I would say, on average, is mildly bullish, and that's true in every part of the world, Asia, Europe, U.S. as well. So even though the market's kind of gone sideways, they're still a little bit bullish, still a bit of optimism out, out there, and that's very different from where we were in the second quarter when people were pretty bearish, at that point.
But I think the really interesting thing to me is that average masks really big differences of view. You say to people, Do you plan to add to your exposure or reduce your exposure? And the only consistent answer is yes. They are especially so about U.S. equities, where we have lots of people responding to the question, Do you plan to add? Yes. And lots of people responding to the question, Do you plan to reduce your exposure to equities? Yes. just take here in Europe, when we survey people, we got about a third of respondents saying, I want to add, and a third saying, I want to subtract my exposure to US equities. And that is a really unusual level of difference of view, actually.
I think behind that, there's a question about the AI build-out, which has been a real driver of the market. W-we think stocks associated with the AI build-out are up by about forty percent, and they're up over recent months and that's what the market's been reliant on. only about a third of stocks in the US market are trading, above their fifty-day moving average.
So, investors are asking about future returns around the AI build-out on which the market's relied. But I think the other interesting thing there is they're asking about volatility, which isn't that common. they are asking, The summer has been a volatile one. If that continues, how much of this trade do I actually want?
Because we saw loads of headlines over the summer, and when you look at semiconductors, the heart of the AI trade, they were up or down more than five percent on more days than any summer for the last twenty-four years. the AI trade, even if you're a great believer in the long-run returns associated with it, you know it's going to come with a lot of volatility, and that's 'cause it's a long-duration play. so small differences of view day to day can make a big difference to your view. And that's why I think people are taking different approaches, 'cause even if you have the same view about the long run here, the right investment choice for you actually depends on what are you trying to achieve. Are you a shorter-term investor who really cares about volatility? Those people are stepping back. Or are you a really long-term investor who can just ride it all out and wait for those, those long-run returns? And I think it's a really useful reminder actually, that the right investment depends on as much on what are you trying to achieve as it does on what do you think about the world.
Oscar Pulido: And I think that last point is important 'cause when you said the view is, bullish or mildly bullish, that could reflect the longer-term view that, people seem to share. But then the specific action that people want to take in portfolios, whether to add or reduce, might come down to the specific investment outcome that they're trying to generate.
You also mentioned equities have had a good year. And Carrie, U.S. stocks have been at the center of that strong year, another year of double-digit returns so far for the U.S. stock market, can you talk us through what have been some of the key drivers of those returns, and what's your outlook for the continuation of the strong returns in the U.S. market?
Carrie King: So, it's been more than a couple of years. Let's go back all the way to when ChatGPT emerged on the scene. It was November 2022. Since that launch of ChatGPT, the S&P 500 has just about doubled in value, most of that stock market return is driven by actual earnings growth rather than any kind of revaluation of the companies,
So, when you disaggregate that doubling of market value, during that period since that launch of ChatGPT, that S&P 500 earnings were up 75% in that period. Higher company valuations did contribute, but to a lesser extent. The price earnings multiple, which is a measure of that, went from just under eighteen times earnings to about nineteen times today, so about an eight percent revaluation. And then dividends cumulatively over that period added about another ten percent.
So, stock mark-market returns very much driven by actual earnings growth, not just sentiment. And then when we look under the hood of the index level earnings growth, what we see is that it was dominated, as you won't, be surprised, by tech. but you can also see the progression of the AI trade from sort of the picks and shovels, the semis, the hardware, the memory, into the broader infrastructure build-out, which includes data centers, power, select industrials like electrical equipment, cooling equipment.
So, when we think you ask about the future and the sustainability, Oscar, I think the question about sustainability becomes what is your conviction that this, massive spending on this AI build-out will continue? Let's just investigate that for a minute. The consensus view right now is that there will be about another $7 trillion dollars of cumulative spending on the AI build-out over the next five years. so how does one garner any confidence that's actually going to happen?
And so, the key determinant to answer that question is when and will these companies earn any kind of a return on that massive spending? In the recent second quarter earnings period, we're absolutely seeing a return being generated today. So, the hyperscalers, the companies that are spending all of this money, saw a meaningful acceleration in the revenue of their cloud business. And what this measures and can confirm is that their spending is absolutely enabling increased AI usage.
So, let me just walk you through the numbers because they're pretty astonishing. The cloud revenue, again, a measure of AI usage, from the top three hyperscalers accelerated from 15% growth in the second quarter last year, to nearly 50% in the second quarter, this year.
And even more acceleration is on tap for Q3. And let me just highlight how impressive that growth rate is when you consider this fact. There was 50% growth on the revenues, but those revenues themselves were double. So, an accelerating growth rate on a higher earnings base, so really powerful growth that we're seeing, which I think underpins the argument that we'll see continued, upside in the long-term, opportunity for AI
Oscar Pulido: And one of the things that you mentioned, Carrie, was that the bulk of the returns in the U.S. stock market over the last couple of years have come from earnings growth and not necessarily higher valuations.
Carrie also mentioned, though, the AI build-out, the trillions of dollars in CapEx. This has been a big question hanging over the market, when will the return on investment come? It sounds like it is coming, but Alex, what are you hearing about the AI exposure that people have in their portfolios? How are they feeling about it? And what do they want to do or what can they do if they want to diversify outside of AI?
Alex Brazier: I'd say this is like the number one topic in terms of portfolio conversations because as you say, and to build on what Carrie was saying, the earnings growth that we've seen has been pretty concentrated, and that's now reflected in a concentration of market capitalization. And which, to emphasize what you both said, isn't to do with valuations and hope about the future, it's actually reflecting what's happening on the ground now, as Carrie was saying.
So, it's not an issue per se, but it is making people think, Okay, I have a lot of exposure to this AI build-out theme. How do I manage that? And I think the first thing is they want to measure it, and measuring it involves taking a different look at the portfolio to a normal split. A normal split might be, I've got U.S. equities, I've got UK equities, I've got European equities, I've got EM equities. This, you want to abandon all the borders and look at each stock and ask, Is this an AI build-out trade stock? And I'm going to put a different lens on the portfolio and look at it based on its exposure to the AI build-out, wherever it is, and its exposure to not the AI build-out. And then people make their decision, as I said before, based on their appetite for volatility, partly, as to what that split's going to be.
Now, you can build the AI build-out exposure across all the things that Carrie was listing there. The themes evolved over time, myriad of opportunities. I think the really more challenging question is: How do you build the not AI build-out sleeve, particularly of the, of the equity portfolio? And what's interesting about this is it's so challenging because everything is being affected by the AI build-out, not least because of that seven trillion number that Carrie mentioned.
So, $7 trillion over five years of CapEx to build the infrastructure That is creating intense competition for capital. And so, every borrower, governments, companies, all having to pay more for their slice of the available pool of capital. And we've seen now rates on U.S. government debt, adjusted for inflation, reach nearly 3%. That's the highest since 2008. And it's really a reflection of all this investment that's going on. People have to pay more to borrow because lots more people want to borrow, to build this capital for the AI investment build-out. So, for fixed income investors, that's great. It's a broader opportunity set.
But the challenge for equities is that equities have to generate a higher return now as well to compete with all this. And that's fine for companies whose earnings are the flip side of that demand for capital, people involved in the AI build-out, 'cause they are going to generate a higher return.
But for other companies, they've got the consequence of this build-out, but not the cause of this build-out, so they're suffering 'cause they have to generate a higher return, but nothing's happened to make them generate a higher return. And so that's put a lot of stocks under pressure, and when you look at, say, the equal weight index for the U.S. or even the European index, stuff that's not really concentrated in the AI build-out, that's down about five percent since the start of the summer. So, the question isn't so much how much AI and not AI, it's how on earth do I construct a not AI part of the portfolio in a way that isn't just buying lots of companies who are going to suffer from higher interest rates? So, companies that have their own strong earnings growth and can combat that rise in interest rates, but at the same time aren't just different aspects of the AI build-out. Those are the nuggets that everybody is looking for in all markets, around the world. And I'm hoping Carrie might tell me where they are.
Oscar Pulido: We'll ask Carrie about that in a second, but AI has such a big impact on the markets that it even has impacted interest rates on government bonds. What you're saying is that because there is so much demand for capital, there's borrowing that's taking place to fund this build-out, those borrowers are going to the market and competing for capital, and that drives up the cost of borrowing, drives up the cost of interest rates, and then has an impact on portfolios in a way that you may not have anticipated. Carrie, to, to the question that Alex has asked, you're actually a long-term value investor. That's been the history of your career. So, when you put the market through the lens of a value investor, what are those opportunities that exist outside of the AI theme?
Carrie King: Thank you. It's a great question. Since end of August, when Fed Chair Warsh made the case for higher rates, markets are up maybe a tiny bit, low single digits, moving sideways. And within that sideways move of the market, we've seen large growth stocks, and we've seen energy stocks, because of geopolitical events, have absolutely outperformed everything else. So, we think that this rotation that's happened underneath this sideways market has created significant, interesting opportunities beyond the AI trade. And I'll share a few of those with you.
So, one of them is healthcare, and healthcare is a very interesting AI diversifier on many different levels. Healthcare as a sector has the strongest upside earnings revision of any sector outside of AI. And at the same time, we're seeing policy headwinds start to dissipate. Don't forget about the demographic tailwind, which is very powerful. About twenty percent of the population in the U.S., as one example, will be over 65 by 2030. This cohort spends three times more on healthcare than the rest of the population.
And then finally, I guess everything always leads back to AI. Healthcare does have AI optionality. One thing that we track is we track the number of companies that are describing economically meaningful uplifts from AI adoption. And over the past year, we've seen a fifty percent increase in the number of healthcare companies that are reporting tangible economic benefits from AI.
And then in addition to healthcare, we see a cyclical recovery in the underlying U.S. economy that's really separate and distinct from the AI tailwind. So, PMIs indicate six straight months of expansion in manufacturing and services in the U.S., and we're seeing earnings swing from negative to positive growth, so from a recessionary to a growth scenario in areas like, for example, logistics, transportation, airlines. So, these are some of the areas where I'm seeing absolutely some interesting valuation opportunities.
Oscar Pulido: And it's interesting, I think when we look at market returns, we often start from January 1st and we tend to think about where markets are year to date. But Carrie has talked about energy stocks, some of the, maybe the industrial complex or sector and healthcare for people who might be loyal listeners of The Bid, they'll remember that Carrie had healthcare as her sleeper pick for 2026 as a sector that would come through with better performance. So, I think she's sticking with that.
Alex, to come back to you, you talk to investors around the world. We've talked a little bit more about the U.S. Right now. Talk to us about what are you hearing from investors in Europe, across the EMEA region, in Asia? Are there any differences or similarities that, that you hear from folks in those parts of the world?
Alex Brazier: I think the interesting thing from those parts of the world versus, say, the Americas or the U.S., is that when we survey investors there, maybe a net 20% typically are planning to add to emerging market exposure. That's different to the U.S., where people are pretty balanced about adding to emerging market exposure post the summer.
And I think what's interesting about that is, again, it's your pervasive point, it's really about AI, not AI. It's not about emerging market versus the rest. 'Cause when you dig into the flows in exchange-traded funds or around emerging markets, two things emerge, one on each side of that great divide. So firstly, on the, on the AI build-out side of the divide, the interest is in economies like Taiwan, very central to the AI build-out trade.
And as the AI theme has developed in the ways that Carrie was describing earlier, and the scale of it, that $7 trillion's become clearer, people have seen an opportunity there. So, they're not buying it because it's an emerging market, they're buying it because it's a way to complete their exposure to the AI build-out trade
But then with the other thing within emerging markets is on totally the other side of divide, and that's on the other side of the ledger is appetite for countries ― exposures in countries like Brazil, where after the first round of the election, we saw the currency appreciate, we saw the local stock market go up. And that appetite tells me that people are looking around for anything that's not well correlated with the AI build-out and where you don't have big downside risks or a large return drag. They're not asking for big, outsized returns. The value in these exposures is just in not having downside but having low correlation to the AI build-out trade, which is now so dominant in m- in many markets. So, the emerging market interest when we survey people, I think when you've got to dig underneath it, and again, it really goes back to AI build-out, not AI build-out, rather than a sort of geographic play.
Oscar Pulido: And even when you're talking about emerging markets, it sounds like investors are getting pretty idiosyncratic at a country level about how to express their view, whether it's more constructive on AI or not.
So, in talking to both of you, we've taken a little bit of a tour around the world to hear about investment opportunities and sentiment from investors in different parts of the world. I think we can all agree that there is a constructive long-term view on AI, some of these big numbers that we've talked about with CapEx and return on investment that is starting to become more tangible. But if somebody's trying to think about investment opportunities outside of AI, what would be the areas that you would point them to, Alex?
Alex Brazier: I'm a bit lacking in conviction right now. So, in terms of my portfolio thoughts, I'd want to build a portfolio that deals with that lack of conviction, particularly outside AI. Something that generates a decent return, isn't dependent on whether the broad market goes up or down. So not a country, not a sector, not a stock. It's a market-neutral strategy, so something that is going to go long and short to generate a return for me from relative moves within markets rather than individual sectors or economies. It's a pretty rich environment for that. And for a guy like me who's lacking in conviction right now, works for my portfolio.
Oscar Pulido: Carrie, what about you? Outside of AI, what are some of the higher conviction areas that, that you would point to?
Carrie King: Oscar, I'm going to stick with my sleeper pick. I think healthcare is a great diversifier. When we see semiconductor stocks go down, we've seen healthcare stocks go up. Combined with all of the attributes I walked you through, I think makes a great story and a great case for healthcare.
Oscar Pulido: Consistency is good. We will keep checking in on that as the year goes on and as we go into 2027. Alex and Carrie, thank you so much for sharing your views, and thank you for doing it here on The Bid.
Alex Brazier: Thanks, Oscar.
Carrie King: Thank You!
Oscar Pulido: Thanks for listening to this episode of The Bid. If you've enjoyed this episode, check out the link in the show notes for my conversation with Tony Kim, where we talk about the latest developments coming out of Silicon Valley and the world of AI from his summer tech tour. Don't forget to subscribe to The Bid wherever you get your podcasts
<<SPOKEN DISCLOSURES>>
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned is merely for explaining the investment strategy and should not be construed as investment advice or recommendation. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures
MKTG1126-H-6058609-EXP1127
