After a long period of technology-dominated megacap leadership, the market has entered 2026 on less stable ground. SP 500 (NYSE:SPY) is breakeven for the year, while the Magnificent 7 shares average a negative 7.3% return.
Rising AI investments are creating jitters among investors and raising questions about future margins, even as industry giants like Amazon (NASDAQ:AMZN) promotes operational efficiency and cost savings.
As tech giants pour tens of billions into AI models, chips and data centers, investors are beginning to wonder whether the disruptors themselves are now exposed to a different kind of disruption: margin compression due to relentless capital spending.
Small business opportunity
That skepticism is one reason capital is moving to smaller companies, especially those positioned as drivers of AI expansion rather than as lead developers. Franklin Templeton argues that the opportunity may lie with suppliers and adopters, not the megacap leaders.
“During the gold rush is a good time to be in the pick-and-shove business,” the company said in a recent report. report.
The small-cap teams focus on companies that produce semiconductor components, energy infrastructure and technical services related to data center expansion. Many of these companies have already benefited from the spending boom, but are still trading at relatively modest valuations compared to the biggest tech names.
AI resilient group
But even within the big software companies, not everyone is convinced that AI will sweep away the incumbents. JPMorgan argues that the recent sell-off has been too random and has created opportunities in what it calls “AI-resilient” names.
In a recent note, the bank’s strategist, citing “flush positioning” and an overly bearish outlook, argued that “the balance of risks is increasingly shifting towards a recovery.”
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