Bond buyers demand richer yields from AI borrowers, nudging investors toward small caps, gold and banks
Global investors are starting to reposition around AI — not just pile into the same mega‑cap names.
According to Reuters, global investors are starting to look past richly priced tech leaders and hunt for undervalued assets.
US stocks, which briefly neared bear‑market territory in April 2025 after US President Donald Trump’s tariffs, still finished the year at record highs and are expected to keep rising in 2026.
Strategists at BlackRock Investment Institute said “this environment is ripe for active investing,” signalling a shift from broad AI beta to more selective positioning.
Reuters reported that US small caps may finally move off the sidelines as earnings improve and borrowing costs ease.
Oren Shiran, portfolio manager at Lazard Asset Management, said “we finally are seeing earnings growth come back into small caps,” while traders expect two 25‑basis‑point cuts from the US Federal Reserve in 2026.
Jefferies equity strategist Steven DeSanctis forecasts the Russell 2000 at 2,825 by the end of 2026, nearly 14 percent above 2025 levels, according to Reuters.
Gold remains a core portfolio anchor.
The metal had its best year since the 1979 oil crisis in 2025, and J.P. Morgan and Bank of America expect prices to reach about US$5,000 per ounce this year, up from US$4,314.12 in 2025, Reuters reported.
Analysts at the Wells Fargo Investment Institute see supportive conditions persisting, but with gains coming at a more measured pace, as per Reuters.
On sector allocation, Morgan Stanley expects healthcare to be a standout, helped by policy support and the expanding use of weight‑loss drugs, according to Reuters.
The same firm sees financials — especially banks — benefiting from stronger M&A activity, a rebound in loan growth, deregulation and AI‑driven efficiency gains, with mid‑cap banks offering “compelling early-cycle opportunities,” Reuters said.
A weaker US dollar is another key theme.
Analysts expect the greenback to soften in 2026 as the Fed cuts rates to support a cooling labour market and as political uncertainty, including the appointment of a new Fed chair, adds volatility, Reuters reported.
That backdrop could support emerging market assets and currencies such as China’s yuan and Brazil’s real, with diverging policy paths driving moves, according to Reuters.
Strategists at BofA Global said “emerging markets have become less volatile than developed markets” and argued that while EM growth is no longer at “good old times” levels, macro stability looks better than it has in years, Reuters reported.
They also warned that domestic politics, including elections in Brazil and Colombia, could still disrupt flows.
The New York Times reported that debt investors are demanding steep premiums from newer AI‑infrastructure borrowers, in contrast to equity investors’ optimism.
Applied Digital, a data‑centre builder, had to pay as much as 3.75 percentage points above similarly rated issuers — roughly 70 percent more in interest — to raise funds, according to the Times.
The Times said companies such as Wulf Compute, Cipher Compute and CoreWeave have issued high‑yield bonds at coupons well above sector averages, with some issues now trading lower in price and higher in yield.
CoreWeave’s debt yields more than 12 percent, compared with less than 7 percent for the average single‑B issuer, the Times reported.
Investors are focusing on construction delays, dependence on a few large tenants and the risk of a future glut in data‑centre capacity.
Will Smith, portfolio manager at AllianceBernstein, told the Times: “We just have to be much more pessimistic and not buy into the hype.”
Still, high yield overall remains active.
By mid‑December 2025, high‑yield issuance reached US$325bn, 17 percent more than 2024 and the strongest level since the 2021 pandemic‑era record, according to PitchBook data cited by Reuters.
Portfolio managers at Janus Henderson said they have “a constructive view on high yield bonds in 2026” and noted that demand has “comfortably” absorbed the heavy supply, Reuters reported.
On the listed equity side, AI heavyweights continue to attract capital.
The Motley Fool reported that Nvidia shares rose about 40 percent in 2025 and roughly 860 percent over three years, with sales expected to jump another 65 percent year over year in the fourth quarter and a price‑to‑earnings ratio of about 40 that some still see as reasonable given growth expectations.
The outlet said some analysts forecast double‑digit annual gains for Nvidia in 2026 and beyond.
According to The Motley Fool’s 2026 AI Investor Outlook Report, around 90 percent of retail investors plan to keep holding or buying AI stocks in the next year.
About two‑thirds of Gen Z and millennial Americans, along with roughly 70 percent of high‑income earners, expect strong long‑term growth from AI‑focused firms.
Motley Fool AI analyst Asit Sharma called AI a “generational investment opportunity” and highlighted smaller semiconductor names and data‑centre connectivity, memory and storage providers as key beneficiaries, all of which also support Nvidia’s ecosystem.
