AI Investments, Credit Challenges, and a Surge in Energy: What Makes 2026 a Crucial Year for Investors

Shifting Market Dynamics: New Leaders and Emerging Risks

While Wall Street’s upward momentum continues, the forces driving the market are evolving, and fresh risks are surfacing in areas that often escape investors’ attention. Brian Mulberry, Chief Market Strategist at Zacks Investment Management, highlights these changes and what they could mean for the future.

Strong Earnings, But a Changing Landscape

“First-quarter earnings have surpassed expectations, with S&P 500 companies posting growth between 12% and 13%,” Mulberry shared in a conversation with AInvest. This robust performance sets the stage for a positive year in equities overall.

However, Mulberry believes 2026 will mark a period of rotation, heightened volatility, and structural transformation, rather than a seamless continuation of recent gains. He notes that the narrow dominance of mega-cap tech stocks is giving way to a broader range of market leaders.

AI’s Double-Edged Sword: From Excitement to Concern

Artificial intelligence remains a central theme, but investor sentiment is becoming more complex. “The initial excitement around AI has shifted to a sense of unease,” Mulberry observed.

Major technology firms are expected to collectively invest hundreds of billions of dollars in AI infrastructure this year. Industry projections suggest that global spending on AI-related infrastructure could reach $600–650 billion by 2026, as companies race to expand data centers and computing capabilities.

Mulberry poses a critical question for investors: “When will these massive investments yield returns—and will they prove profitable after such significant outlays to boost AI capacity?”

Labor market concerns add to the uncertainty. Research indicates that rapid AI adoption could put pressure on white-collar jobs, increasing volatility. “There’s real anxiety that automation could lead to higher unemployment,” Mulberry explained.

He also cautions that physical limitations exist: “Current computing resources are insufficient to support widespread AI adoption. Significant expansion of data centers and power infrastructure is needed before AI can scale as quickly as some anticipate.”

Energy: An Overlooked Opportunity

This infrastructure challenge is creating new opportunities, particularly in the energy sector. Mulberry describes energy as “one of the top-performing sectors in the S&P 500 this year,” fueled in part by the power needs of AI data centers. Utilities and power generation companies—traditionally seen as slow-growth—are attracting renewed interest from investors.

“Substantial investments are being made to ensure enough electricity is available for both AI-driven and everyday consumer demand,” he noted.

Mulberry also points to growth potential in industries adjacent to AI, such as turbine manufacturers and copper producers, which are essential for expanding the power grid. “These AI-adjacent sectors are contributing to the market’s broadening leadership,” he said.

Industry reports confirm this trend: utilities and energy infrastructure companies are ramping up capital spending for grid upgrades and data center power needs, while copper prices reflect expectations of tighter supply amid increased electrification and AI expansion.

Private Credit: A Hidden Source of Risk

While AI dominates headlines, Mulberry warns that private credit markets are quietly accumulating risk. “In private credit, transparency is limited—you often don’t know exactly what you own,” he cautioned, referencing the opaque nature of portfolios holding illiquid corporate debt.

He points to mounting stress in the economy: “Last year saw nearly 1,000 large public bankruptcies—twice the typical average.”

Mulberry emphasizes that the main threat is not an immediate collapse, but rather the risk of mispricing. “The true quality of these credit holdings may differ significantly from their reported market values,” he warned.

Looking Ahead: Gains with Volatility

Despite these risks, Mulberry maintains a cautiously optimistic outlook for the broader market. With earnings expected to climb around 10%, he anticipates the S&P 500 could rise by 7% to 9%, potentially reaching the low 7,000s. However, he warns that volatility is likely to intensify. “Historically, the average intra-year decline has ranged from 18% to 20% over the past 75 years,” he noted, adding that uncertainties around AI leadership, credit conditions, and sector rotation could make such swings more common. “Uncertainty breeds volatility,” Mulberry concluded.