AI in 2026: growth and reality check

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AI in 2026: growth and reality check

20/07/2026

The AI universe continues to expand rapidly, and the list of beneficiaries is long. At the same time, potential risks are emerging, reinforcing our conviction in selective stock picking.

IN A NUTSHELL

AI momentum continues to push equity markets to new highs despite geopolitical and economic challenges. Corporate willingness to invest in the new technology continues to be matched by investors’ appetite for it.
The sector’s dynamism is also reflected in rapid shifts in market share, pricing and even business models. Just like the AI companies themselves, investors must continuously adapt in a fast-evolving environment.
All this argues against a buy-and-hold strategy. We favor a selective approach and sectors that are already visibly benefiting from the AI boom, such as semiconductors and utilities.
However, the unbridled market enthusiasm we’ve recently observed for certain companies - alongside intensifying competition from China and rising customer price sensitivity - makes us somewhat more cautious heading into the summer. We are monitoring areas where valuations may look stretched. That said, we’re convinced there is still no shortage of opportunities in AI.

Vincenzo Vedda

Chief Investment Officer

Benjardin Gärtner

DWS Head of Global Equity

Tobias Rommel

Portfolio Manager

Artificial intelligence: strong momentum, rising costs, and a need for selectivity

Artificial intelligence (AI) continues to be one of the most powerful long‑term themes in global markets. Its influence is expanding rapidly across industries, driven by ongoing technological progress, rising investment, and increasing use in everyday business processes. Large companies are committing significant resources to AI infrastructure, and demand for computing power, data processing, and new applications keeps growing. This growth is not just cyclical. It reflects a structural shift in how companies operate and compete. AI is becoming a core business tool, not just an add-on. New software systems, including so‑called AI agents, are able to perform complex tasks independently, which increases demand for computing resources and accelerates adoption across sectors.

At the same time, investment levels are unusually high. The largest technology companies continue to expand their infrastructure, with spending reaching levels that already have measurable effects on the broader economy. In simple terms, AI is becoming a major driver of economic activity, similar to earlier waves of technological change. Demand for AI is supported by both companies and investors. Businesses want to use AI to improve productivity or create new products, while investors are attracted by the strong growth prospects. This combination has pushed equity markets higher, with AI‑related sectors playing a key role. However, the nature of this demand is evolving. The initial phase was driven by a “build at any cost” mindset. The focus is now shifting toward efficiency and costs. Companies are increasingly asking whether AI delivers enough value relative to its expense. This shift is important because it introduces a more critical approach to spending decisions.

This change highlights one of the main constraints in the AI ecosystem: costs. AI systems require large amounts of computing power and infrastructure, which are expensive to build and maintain. At the same time, some customers are becoming more price‑sensitive and are looking for ways to reduce usage or optimize costs.

Another key bottleneck is infrastructure. The rapid increase in AI usage is creating pressure on supply chains, especially for semiconductors and electricity. The demand for powerful chips is currently growing faster than new production capacity can be built. These constraints matter because they shape where profits are generated within the value chain.

Geopolitics also plays a role, mainly through competition and regulation. Chinese AI providers are emerging as strong competitors, offering similar performance at lower cost. This creates pricing pressure and may shift market share. At the same time, government intervention – such as export restrictions – can disrupt supply and influence adoption decisions.

A central uncertainty remains whether AI will fully meet expectations. While AI can improve individual tasks, the overall impact on productivity and profitability is less clear. If companies struggle to generate sufficient returns from their AI investments, this could challenge current market valuations.

These dynamics are already visible in financial markets. Some areas, such as semiconductors, have benefited strongly due to high demand and limited supply. However, the market value of the semiconductor sector has already almost doubled this year, while concerns are growing about whether AI companies—most notably OpenAI and Anthropic—as well as data center providers can continue investing at the same pace. In the near term, we therefore expect the sector to enter a phase of consolidation.Utilities have also emerged as beneficiaries, as rising electricity demand becomes a key constraint. On the other hand, segments like software face greater pressure, as competition intensifies and business models adjust.

For investors, the implications are clear. AI remains a powerful long‑term opportunity, but returns are becoming more uneven. The broad enthusiasm of earlier phases is giving way to a more selective environment. Market leadership can shift quickly, and not all companies will benefit equally.

This makes careful selection increasingly important. Investors need to focus on companies that are already showing tangible benefits from AI, or that occupy key positions in the value chain. At the same time, they should pay close attention to valuations, costs, and the sustainability of growth expectations.

In short, AI remains one of the defining investment themes of the coming years. But as the market matures, success will depend less on broad exposure and more on understanding where value is truly being created.

If you are interested in the whole piece, here is the link.

Figure 1: Costs and benefits – are they properly aligned?

_{^{Source: Artificial Analysis Intelligence Index, Deutsche Bank Research, DWS Investment GmbH as of 6/18/26}}

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