The 2026 Global Investment Outlook from Morningstar offers invaluable insights into current market trends, particularly focusing on the implications of the ongoing artificial intelligence (AI) revolution. The report outlines a contrarian investment approach, highlighting the growing importance of balancing exposure, considering global investment opportunities, and carefully navigating the fixed-income landscape. With AI technology rapidly transforming various sectors, investors are advised to tread cautiously to avoid potential pitfalls.
AI has emerged as “the defining investment theme of our era,” with companies investing hundreds of billions in its development and supporting infrastructure. The Morningstar Global Next Generation Artificial Intelligence Index has seen a remarkable gain of 242% over the past three years, largely driven by the hype surrounding the launch of ChatGPT in late 2022. Notably, Nvidia, a leader in AI chip production, has witnessed its market value soar from $339 billion to nearly $4.5 trillion.
Despite this impressive performance, the report raises concerns over concentration risk within the stock market. The Morningstar US Market Index shows that the ten largest constituents now account for 36% of its weight, up from 23% five years ago, with nearly all linked to AI. While such concentration does not necessarily predict market crashes, it does indicate a less diversified portfolio for investors. High-quality companies that once dominated the tech landscape, such as Cisco, Microsoft, and Oracle, experienced significant downturns during the late 1990s tech bubble, raising questions about the sustainability of current valuations.
The report does not advocate for complete avoidance of AI stocks; rather, it suggests investors consider balancing their portfolios with value stocks and small caps, which appear reasonably priced. Dividend-paying stocks, typically associated with older economy sectors, can offer a stable investment path that reduces reliance on the AI theme.
Investment Picks from Morningstar
In addition to balancing exposure, the report emphasizes the importance of global investments. After years of underperformance, the Morningstar Global Markets ex-US Index has gained traction, outpacing its US counterpart this year. However, US investors still exhibit low exposure to international equity, with domestic funds growing in popularity over foreign stocks.
The resurgence of international equities in 2025 has been partly fueled by a weakened US dollar, which has not only lifted the values of foreign assets but also contributed to strong returns in local currencies across various global markets. Emerging markets, particularly in Korea, China, and Latin America, are performing well, with the report highlighting potential upside in these regions. Developed markets, including the United Kingdom and continental Europe, also present attractive valuations.
Currency diversification serves as another incentive for US investors to consider global exposure. The US dollar, having enjoyed a period of relative strength, is now anticipated to enter a phase of cyclical weakness, driven by factors such as rising debt burdens and policy uncertainties. Investing internationally offers a way to hedge against this risk while gaining access to markets that are less tech-dominated and more diversified overall.
The report also addresses the fixed-income landscape, which has seen a revival following a tumultuous 2022. The Morningstar US Core Bond Index has achieved an average annual return of over 4% since late 2022. Investors venturing into riskier assets have enjoyed even higher yields, with the Morningstar US High Yield Bond Index yielding 7% and the Morningstar LSTA US Leveraged Loan Index at 8.4%. Despite interest rate cuts in 2025, yields remain significantly higher than those seen in the previous decade.
Looking ahead, the report suggests that intermediate-term bonds represent a “sweet spot” for fixed-income investors, while caution is advised regarding longer maturities and high-yield sectors due to tighter credit spreads. There are opportunities in local-currency emerging-market debt, particularly if the dollar continues to weaken.
As investors navigate the complexities of the current financial landscape, the report underscores the importance of diversification. It suggests a shift in mindset toward preparation rather than prediction, advocating for a diversified portfolio that can adapt to an array of market outcomes. With no one possessing a crystal ball, preparing for various scenarios may be the most prudent approach in these uncertain times.
For more insights on this subject, you can refer to the original Morningstar report.
See also
Microsoft Announces $17.5 Billion Investment in India to Skil 20 Million in AI by 2030
AI Disrupts Entry-Level Job Market: 78% of Companies Adopt New Tools, Students Face Skills Gap
DeepSeek Develops AI Model Using Smuggled Nvidia Chips Amid US Export Ban
SIMPLE CHARM Transforms Beauty Tech with AI-Powered Precision and Safety Standards
Pew Research Reveals 64% of U.S. Teens Use AI Chatbots Daily, Led by ChatGPT
