JPMorgan’s Outlook for 2026: A Cautiously Optimistic View on AI and M&A Activity
As the year draws to a close, attention turns to future market dynamics, with JPMorgan’s London-based analysts outlining their expectations for 2026. The US investment bank signals a cautiously constructive sentiment, forecasting advancements in artificial intelligence (AI), a resurgence of mergers and acquisitions (M&A), and an improved environment for stock picking as key drivers of market returns.
JPMorgan’s report emphasizes a market transitioning from early-stage AI hype to practical applications, indicating that investments in AI are set to enhance productivity, expand margins, and drive revenue growth. The firm notes that easing financial conditions may revitalize corporate deal-making, which has been relatively dormant in recent cycles.
In its updated list of high-conviction calls, JPMorgan highlights areas where consensus expectations may be overly optimistic or cautious as 2026 approaches. AI’s influence is pervasive across sectors, with stakeholders increasingly embedding AI into operations and data systems rather than merely focusing on its technological allure.
The London Stock Exchange Group (LSE:LSEG) emerges as a notable beneficiary of AI integration, as JPMorgan anticipates that its data and analytics capabilities will drive growth, particularly as more customers leverage AI tools for financial data interactions. Meanwhile, in the telecom sector, Nokia (NYSE:NOK) is identified as a preferred name, benefiting from its exposure to optical networks and IP routing, which are vital for managing increased data flows from cloud computing and AI workloads. Analysts project mid-teens earnings growth for Nokia if management meets its targets.
In the semiconductor sector, JPMorgan remains optimistic about capital equipment suppliers, anticipating a recovery in capital spending by chipmakers as pricing improves. The bank specifically cites ASML (NASDAQ:ASML) as a key player poised to benefit from any uptick in fabrication investments.
Alongside advancements in AI, JPMorgan expects a favorable environment for M&A activity in 2026. With corporate balance sheets appearing stronger than in previous cycles, companies are under increasing pressure to deliver growth in a slower macroeconomic landscape. Although the bank does not base its investment strategy on takeover speculation, it points to the telecom, mining, and industrial sectors as areas where consolidation could accelerate. Here, scale and cost efficiency are crucial, favoring companies with strong cash generation capabilities or unique assets.
The anticipated increase in deal activity may also rekindle investor interest in sectors that have previously been overlooked, creating opportunities beyond the immediate transaction headlines. Overall, JPMorgan’s sector outlook reflects a modest tilt toward optimism, particularly in financials, industrials, and certain technology segments, while consumer staples, chemicals, and some areas of insurance continue to face challenges.
Within European banks, stocks demonstrating improving returns on equity but still depressed valuations are considered attractive. Barclays (LSE:BARC) is one such stock, where expectations could shift positively as management outlines its strategic vision for the next business phase. In the industrial sector, Rolls-Royce (LSE:RR.) stands out for its margin improvements and robust cash generation, with analysts expecting ongoing self-help measures to bolster earnings through 2026.
Conversely, JPMorgan adopts a cautious stance on the chemicals sector, where weak demand and excess capacity are weighing on earnings. BASF is rated Underweight, with forecasts falling below consensus expectations. Nevertheless, the bank acknowledges exceptions within struggling sectors, highlighting Croda International (LSE:CRDA) as a top-conviction Overweight, due to its focus on higher-margin specialty ingredients and evidence of resilient organic growth.
One of the primary insights from JPMorgan’s 2026 outlook is the expected wide dispersion between stocks, suggesting that returns will increasingly depend on company-specific execution rather than broad market movements. In pharmaceuticals, AstraZeneca (LSE:AZN) is favored, with projections for double-digit core earnings growth driven by existing products and a promising pipeline of late-stage trials set for 2026. In the payments sector, Adyen is framed as a recovery opportunity, as the company is believed to have weathered the worst of its growth slowdown.
On the bearish side, stocks facing scrutiny include Admiral Group (LSE:ADM), which is rated Underweight due to concerns over valuation and margin sustainability, and Rightmove (LSE:RMV), which is viewed cautiously amid a muted growth outlook in a sluggish housing market.
As markets prepare to open in the new year, JPMorgan’s outlook encourages selective optimism. The combination of AI adoption and a potential M&A revival offers support for anticipated earnings growth, but the bank underscores that not all sectors or stocks will benefit equally. Analysts are inclined towards companies demonstrating clear execution, identifiable catalysts, or valuations that do not accurately represent their growth potential, setting the stage for significant investor discussions extending beyond the holiday season.
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