BlackRock expects AI to continue dominating markets in 2026 despite risks

By Naomi Rovnick

LONDON, Dec 4 (Reuters) - BlackRock, the world's largest asset manager, expects AI to continue dominating markets in 2026 and anticipates a turbulent ride for investors as speculative trading and leverage raise the risks of a repeat of last month's sharp selloff.

Helen Jewell, BlackRock's CIO of fundamental equities EMEA, said on Thursday returns from AI-linked investments would stay on an upward trend, with some periods of doubt over sector valuations or outlook that would keep stocks volatile. 

"Do I expect an upward trend of AI growth returns? Yes, these are incredible capital spends being driven by companies with incredible amounts of cash," Jewell told Reuters on the sidelines of a conference in London.

CROWDING IN MARKET, LEVERAGE LIKELY TO SPUR MARKET SWINGS

"Do I think that there is likely to be a rocky ride as we go there. Also yes," she said, citing crowding and leverage as key reasons for market fluctuations. 

Doubts about AI groups overspending in their rush to build new data centres caused the biggest U.S. stock market pullback in months in November. 

Hedge funds are also trading with near-record amounts of leverage, raising risks for fast and furious short-term selloffs if declines in asset prices force them to liquidate positions for cash to meet lenders' requirements. 

Jewell said she was adding to positions in European energy and power infrastructure groups, such as Siemens Energy, as the AI boom and rush to build new data centres boosted demand for turbines, grid technology and clean energy. 

Speaking separately on a panel, Jewell said BlackRock remained positive on defence stocks but not as positive as at the start of the year.

European aerospace and defence shares fell 8% in November, the biggest drop since June 2024, as speculation grew around a potential Ukraine-Russia peace deal.

(Reporting by Naomi Rovnick; Editing by Dhara Ranasinghe and Bernadette Baum)