Hong Hon, Manager, Global Equities, Lonsec
Since my last article, AI Stocks: Bubble or Structural Shift? back in December 2025, markets have mostly stayed upbeat, but the rotation under the surface has only gotten louder.
Global equities kicked off 2026 on the front foot. Emerging markets and commodities led the way, and most investors started the year expecting AI to keep driving the market – just with a bit more breadth beyond the US mega caps after last year’s outsized run. Even so, market concentration remains extremely high. The early-year wobble in the ‘Mag Seven’ stocks helped the equal‑weighted US index outperform for a bit, but their gap with the rest of the market remains historically wide.
Capex
Upstream, the hyperscalers are still spending like there’s no tomorrow. Cloud revenue continues to grow, but margins are getting squeezed as the AI infrastructure build-out rolls on. A few hyperscalers have even tapped the bond markets, shifting away from their usual cash‑funded model. Markets now expect the capex of hyperscaler to surpass US$600b in 2026, with roughly three‑quarters tied directly to AI.
Theme hangover from 2025
Two themes look set to continue during the year:
- First, circular financing – the tight loop where capital, contracts and chips pass between the same handful of players is making true end-demand harder to read. The scale doesn’t appear to be in bubble territory as yet, but the optics are getting shaky, particularly if monetisation falls behind.
- Second, depreciation cycles are speeding up as GPUs turn over faster. That means earnings drag will be hitting sooner, although the eventual shift of older GPUs from training to inference could help extend useful life.
Software as a Service (SaaS)
The biggest market reaction this year has come from software and data‑platform names. After Anthropic unveiled its agentic ‘co‑work’ tools, which automate multi‑step workflows and threatens many subscription‑based SaaS offerings, the S&P 500 Software & Services cohort sold off hard and has remained lower year‑to‑date. Investors are now questioning pricing power, margin durability and whether AI agents may cannibalise the traditional ‘per‑seat’ subscription model.
Some analysts have even labelled the sell-off ‘SaaS‑mageddon’ or ‘SaaS‑pocalypse’, arguing that agents flatten the pricey ‘middle layer’ between the user and database, push execution into API’s and shift value capture toward outcomes and compute. That said, it does not appear to be a fundamental collapse (yet), with many SaaS firms still seeing solid adoption, though several have hinted at margin pressure as AI spending ramps.
Taken together, the story so far in 2026 is pretty clear – upstream, cash flows remain massive and capex has ramped even harder, while downstream, monetisation is uneven and parts of the software business model are getting questioned more directly. The tone has also shifted, with markets no longer debating whether AI is real anymore, but rather – who actually captures the value, and what happens when the marginal ‘user’ is an AI agent, not a human.
The bottom line
2026 has opened with more capital intensity, more leverage and a sharper focus on who monetises AI workflows. The big-picture thesis – AI as a durable productivity wave, still stands. But markets have just delivered a real‑time stress test of software’s business‑model resilience. Being invested now means being selective – watching upstream cash flows, downstream unit economics and increasingly, how software pricing models evolve in an agent‑driven world.
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