The AI market is tipped to splinter in 2026. <\/p>\n
The last three months of 2025 were a rollercoaster of tech sell-offs and rallies, as circular deals, debt issuances, and high valuations fueled concerns over an AI bubble.<\/p>\n
Such volatility may\u00a0be an early sign of how AI investment is set to evolve as investors pay closer attention to who is spending money and who is making it, according to\u00a0Stephen Yiu, chief investment officer at Blue Whale Growth Fund.<\/p>\n
Investors, especially retail investors who are exposed to AI through ETFs, typically have not differentiated between companies with a product but no business\u00a0model, those burning cash to fund AI infrastructure, or those on the receiving end of AI spending, Yiu\u00a0told CNBC.<\/p>\n
So far, “every company seems to be winning,” but AI is in its early innings, he said. “It’s very important to differentiate”\u00a0between different types of companies, which is “what the market might start to do,” Yiu added.<\/p>\n
This illustration taken on April 20, 2018, in Paris shows apps for Google, Amazon, Facebook and Apple, plus the reflection of a binary code displayed on a tablet screen.<\/p>\n
Lionel Bonaventure | Afp | Getty Images<\/p>\n
He sees three\u00a0camps:\u00a0private companies\u00a0or\u00a0startups,\u00a0listed\u00a0AI\u00a0spenders and AI infrastructure\u00a0firms.\u00a0<\/p>\n
The first group, which includes OpenAI and Anthropic, lured\u00a0$176.5 billion in venture\u00a0capital in the first three quarters of 2025, per\u00a0PitchBook\u00a0data.\u00a0Meanwhile,\u00a0Big Tech\u00a0names\u00a0such as Amazon<\/a>, Microsoft<\/a> and Meta<\/a> are\u00a0the ones cutting checks to AI\u00a0infrastructure providers such as\u00a0Nvidia<\/a> and Broadcom<\/a>.\u00a0\u00a0<\/p>\n Blue Whale\u00a0Growth Fund\u00a0measures a company’s free cash flow yield, which\u00a0is\u00a0the amount of money a company generates after capital expenditure, against its stock price, to figure out whether\u00a0valuations are justified.\u00a0\u00a0<\/p>\n Most companies within the Magnificent 7 are “trading a significant premium” since they started heavily investing in AI, Yiu\u00a0said.<\/p>\n “When I’m looking at valuations\u00a0in AI,\u00a0I would not want to position\u00a0\u2014\u00a0even though I believe in how AI is going to change the world\u00a0\u2014\u00a0into the AI spenders,” he added, adding that his firm would rather be “on the receiving end” as AI spending is set to further impact company finances.\u00a0\u00a0<\/p>\n The AI “froth” is “concentrated in specific segments rather than across the broader market,”\u00a0Julien Lafargue, chief market strategist at\u00a0Barclays\u00a0Private Bank and Wealth Management,\u00a0told CNBC.\u00a0<\/p>\n The\u00a0bigger risk lies\u00a0with companies that are securing investment\u00a0from the AI bull run but are yet to generate earnings\u00a0\u2014\u00a0“for\u00a0example, some\u00a0quantum\u00a0computing-related companies,” Lafargue said.\u00a0<\/p>\n “In these cases, investor positioning seems driven more by optimism than by tangible results,” he added, saying that\u00a0“differentiation is key.”<\/p>\n The need for differentiation also reflects an evolution of Big Tech business models.\u00a0Once asset-light firms are increasingly asset-heavy as they gobble up technology, power and land needed for their bullish AI strategies. <\/p>\n Companies like Meta and Google\u00a0have morphed into\u00a0hyperscalers\u00a0that\u00a0invest heavily in GPUs, data\u00a0centers, and AI-driven products, which changes their risk profile and business model.<\/p>\n Dorian Carrell, Schroders’ head of multi-asset income, said valuing these companies like software and capex-light plays may no longer make sense \u2014 especially as companies are still figuring out how to fund their AI plans.<\/p>\n “We’re not saying it’s not going to work, we’re not saying it’s not going to come through in the next few years, but we are saying, should you pay such a high multiple with such high growth expectations baked in,” Carrell\u00a0told CNBC’s “Squawk Box Europe” on Dec. 1.<\/p>\n Tech turned to the debt markets to fund AI infrastructure this year, though investors were cautious about a reliance on debt. While\u00a0Meta\u00a0and\u00a0Amazon\u00a0have raised funds this way, “they’re still net cash positioned,” Quilter Cheviot’s global head of technology research and investment strategist Ben Barringer told CNBC’s\u00a0“Europe Early Edition” on Nov. 20 \u2014 an important distinction from companies whose balance sheets may be tighter.<\/p>\n The private debt markets “will be\u00a0very interesting next year,” Carrell added.\u00a0<\/p>\n If\u00a0incremental AI revenues\u00a0don’t\u00a0outpace those expenses, margins will compress and investors will question their return on investment, Yiu said.\u00a0<\/p>\n In addition, the performance gaps between companies could widen further as hardware and infrastructure depreciate. AI spenders will need to\u00a0factor into their investments, Yiu added.\u00a0“It’s\u00a0not part of the P&L yet. Next year onwards, gradually,\u00a0it will confound\u00a0the\u00a0numbers.”\u00a0<\/p>\n “So,\u00a0there’s\u00a0going to be\u00a0more and more\u00a0differentiation.”\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"The AI market is tipped to splinter in 2026. 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