Growing Importance of Separating AI Winners and Losers

John Gomez, President and Co-founder of Brentview Investment Management, joins the latest Access to Alpha Podcast to discuss the similarities between 2025 and early 2026 markets and why stock selection, particularly in AI-related companies, is becoming increasingly important.

Transcript

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Welcome to the Access to Alpha podcast series from Advisors Asset Management, where we provide exclusive market insights and timely commentary from our portfolio managers and strategic partners. AAM has been committed to delivering innovative, research-driven solutions that help investors navigate complex markets and build more resilient portfolios. We invite you to hear these insights now.

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As John Gomez, president of Brentview Investment Management, I'm pleased to join you on the AAM Access to Alpha podcast. Today is Thursday, June 25th. In today's episode, I'll focus on two themes. First, the similarities between the market backdrop in 2025 and 2026 today. Second, I'll discuss a few key data points that we believe are shaping the current environment and what they might mean for investors. Let's start with 2025. Last year, markets were largely driven by an uncertainty earlier on, particularly around tariff implementation. As a result, investors investors positioned themselves defensively. However, once that uncertainty began to clear, we saw a sharp shift in sentiment. Investors moved back towards offense, and the market responded with a strong rally beginning in April. Now, fast forward to 2026 year to date, we've seen a similar pattern. Defensive positioning was critical during the first quarter as the S P 500 bottomed out on March 30th. But since then, the recovery has been driven by a relatively narrow group of companies, primarily in energy, semiconductors, and other AI-related industries. And when we dig deeper, that concentration becomes even more pronounced. According to Facet Attribution, just three companies, one memory chip manufacturer and two hard disk drive companies, accounted for roughly 26% of the Russell 1000 values, 13.7% returned through May. At the same time, index composition is changing rapidly. Using constituent weighting, semiconductor exposure in the S P 500 has increased significantly from about 5% in 2022 to roughly 18% as of June 2026. So we're not just seeing leadership narrow, we're also seeing the market itself evolve in real time. Another critical dynamic is the scale of investments flowing into artificial intelligence. Across both private and publicly traded companies, capital raises have been substantial and have ranged from $50 billion debt offerings to as much as $110 billion in equity raises. In fact, investment bank Goldman Sachs estimated late last year that hyperscaler capital expenditures would reach $1.15 trillion between 2025 and 2027, more than double that what was spent in the prior three-year period. These CapEx moves are intended to capture a growing segment of revenue. According to research firm ExponentialView, Global AI sales X-China reached $25 billion in the first quarter, outpacing the estimated $21 billion in depreciation costs. What all of this signals is an important shift. We're moving away from a period where a group of small asset-like companies drove much of the market's return towards a new environment where AI is far more capital-intensive and its impact extends across multiple sectors. More importantly, the winners aren't just those investing in AI, but those deploying it effectively. In addition, investors will need to reasonably vet the depreciation assumptions that companies are making on a company-by-company basis. That brings us to our key takeaway. We believe that these cross currents, narrow leadership, rising capital intensity, and rapid technological change, are setting the stage for increased performance dispersion across equities. In other words, the gap between the winners and losers is likely to widen. In this environment, stock selection becomes increasingly more important. Investors will need to evaluate the capex assumptions that companies are making, such as the useful life of their investments. In addition, a company's cost of capital and their balance sheet strength will determine which business can maintain their competitive positioning during this transition towards AI. Thank you for listening to the Brentview Dividend Growth Update and the AAM Access to Alpha podcast. If you have any questions, please reach out to your AAM Regional Vice President or Sales Consultant.

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Thank you for joining us on this edition of AAM's Access to Alpha. For more information, please reach out to a financial professional or visit our website at AAMLive.com.