Sean Ashton, Head of Investments, Private Clients by Old Mutual

Markets in early 2026 are showing a mix of optimism and caution. US equity valuations remain elevated, and the dominance of mega-cap technology companies is impossible to ignore. Headlines often warn of an AI bubble, yet that interpretation misses the nuance. Bubbles form when markets are euphoric, not when investors are asking questions about growth, capital allocation and returns - and right now, scepticism is what we see. Earnings multiples for the tech-heavy NASDAQ 100, while high, remain far below the peaks of the dot-com era. Elevated valuations are a consideration, but they are far from a definitive signal of market excess.

The so-called “Magnificent Seven” (Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla) dominate both earnings contribution and growth, and heavily influence indices like the S&P 500. At first glance, index-level price-to-earnings ratios appear high, but an equal-weighted perspective tells a different story: valuations are much in line with historical averages. The skew arises from size, not widespread overvaluation. The Information Technology sector’s growing share of market capitalisation is largely a function of a sharply higher earnings contribution – from 18% of the S&P 500’s earnings to 31% currently. Not every bull market reflects irrational exuberance – price ultimately follows earnings over the long haul.

This concentration is, however, being accompanied by a structural evolution in technology business models. Large companies that were once capital-light cash generators are now investing aggressively in artificial intelligence infrastructure - large-scale data centres, GPU chips and other technologies that underpin the next wave of productivity. Meta, for instance, is projecting a near doubling of its capital expenditure in 2026, while Microsoft continues to expand its cloud and AI capabilities. On this score, there is currently a sharp divide in how the market is treating the issue: companies that are showing a clear near-term acceleration in top-line growth are being rewarded (e.g. Meta), while those that fail to show an inflection for their investment efforts are being heavily punished. Nevertheless, these are long-term investments, and we are witnessing a technological revolution that could drive productivity gains as transformative as the internet build-out in the 1990s.

Beyond valuations and technology, broader economic forces are shaping the investment landscape. Monetary policy remains supportive, yet inflation trends, labour market shifts and geopolitical tensions all matter. Rising commodity prices, particularly metals, reflect the resource intensity of the current technology infrastructure build-out and the strategic imperative for nations to secure critical materials. Investors cannot ignore these factors, but they should see them as context rather than triggers for panic.

Amid these dynamics, opportunities continue to emerge. Examples of businesses early in their growth curve that we find compelling include Nubank, the fully digital bank in Latin America, which has expanded to 120 million customers and continues to expand into new markets, including Mexico and potentially the US. Lemonade, an AI-native insurer in the US, while still loss-making, is demonstrating increasingly attractive unit economics through industry-competitive loss ratios and is scaling rapidly as a minnow in an enormous addressable market. As always, these types of opportunities are sized appropriately and included within the context of client risk tolerance, with risk carefully managed within portfolios.

The lesson for long-term investors is that perspective matters more than short-term noise. Markets will fluctuate, valuations will rise and fall, and even the most promising growth stories will experience growing pains. But investors who understand structural trends, maintain discipline and focus on fundamentals are likely to be rewarded. The technological revolution is already underway. For investors willing to separate signal from noise, 2026 offers both challenges and remarkable opportunities.