A.) The AI Trade in 2025: From Easy Gains to Selective Winners

The artificial intelligence rally became far more challenging in 2025. While heavy capital spending and strong earnings from Big Tech helped propel the S&P 500 up more than 17% and the Nasdaq Composite up 22% year to date, the era of broad, easy gains faded as the year progressed.

By the second half, markets became increasingly bifurcated. Elevated valuations, macroeconomic uncertainty, and concerns over an emerging AI bubble led to volatility and sharper differentiation between winners and laggards. Investors shifted focus toward companies enabling AI infrastructure and demanded clearer evidence of monetisation.

Among the “Magnificent Seven,” Alphabet and Nvidia emerged as leaders, while Amazon and Apple lagged. The market’s attention narrowed to firms most directly benefiting from AI buildouts and deployment.

As Wedbush’s Dan Ives put it, 2025 marked the moment when the AI revolution “hit its next gear,” with massive capital flows into Big Tech—even as fears of an AI bubble lingered.

Key AI Trends That Defined 2025

1. Google Reclaims Leadership in AI

Alphabet entered 2025 perceived as an AI underdog, but that narrative flipped decisively. The launches of Gemini 3 and Nano Banana Pro, rapid user growth, and the expansion of AI Overviews—now reaching 2 billion monthly users—boosted investor confidence.

Strong margins at Google Cloud, a favorable antitrust ruling, and enthusiasm around its TPU chip business helped propel Alphabet shares 66% higher, making it the top performer among the Magnificent Seven. The shift also benefited chip partner Broadcom, while Nvidia and Microsoft—key OpenAI proxies—underperformed despite ChatGPT retaining user dominance.

2. AI Infrastructure Stocks Surge

Some of the biggest winners came from less glamorous corners of the market. Western Digital, Micron Technology, and Seagate ranked among the top performers in the S&P 500 as AI-driven data center construction surged.

• Western Digital jumped over 290%, aided by AI storage demand and the spinoff of its SanDisk unit.

• Micron gained more than 228%, riding booming demand for high-bandwidth memory.

• Seagate rose roughly 227%, benefiting from enterprise and cloud storage needs.

These gains helped make information technology the S&P 500’s best-performing sector in 2025.

3. AI Transforms E-Commerce

AI’s real-world impact became increasingly visible in retail. Morgan Stanley highlighted “agentic commerce”—AI-powered shopping agents—as a major growth driver.

Companies such as Amazon, Walmart, eBay, Wayfair, and delivery platforms DoorDash and Instacart benefited from conversational, personalised shopping experiences integrated into platforms like ChatGPT. DoorDash, which embedded grocery ordering directly into ChatGPT, saw its shares rise 40% and earned bullish calls for 2026.

4. ‘Physical AI’ Takes Shape

Investor enthusiasm expanded beyond software into physical AI, including robotics, autonomous vehicles, and even space-based computing.

• Waymo expanded robotaxi operations, while Tesla gained on optimism around self-driving and robotics.

• Uber and Lyft advanced driverless taxi trials, lifting both stocks.

• Space emerged as a new AI frontier, with companies such as AST SpaceMobile, EchoStar, Planet Labs, and Rocket Lab posting triple-digit gains as interest grew in off-world data processing and connectivity.

Robotics deployment also accelerated, with firms like Amazon, Agility Robotics, and Figure AI rolling out robots in warehouses and factories to improve efficiency.

5. Private AI Giants Fuel 2026 IPO Hopes

Big Tech’s spending spree has also fueled a private-market boom. Startups have stayed private longer, but momentum is building toward public listings.

SpaceX confirmed plans for a 2026 IPO, potentially the largest ever. OpenAI, Anthropic, and Anduril are also seen as likely future listings, reinforcing confidence in the broader AI ecosystem and supporting public-market valuations.

Looking Ahead to 2026

The AI trade is no longer about riding a rising tide. Instead, it has become selective, infrastructure-driven, and application-focused. While volatility and valuation concerns remain, continued capital investment, real-world deployment, and a potential wave of blockbuster IPOs suggest the AI story is far from over.

B.) Evercore ISI Names ‘AAA’ Tech Picks for 2026

Evercore ISI has identified Amphenol, Apple and Arista Networks as its top technology stocks for 2026, citing their strong positioning for the next phase of artificial intelligence adoption.

Analyst Amit Daryanani expects AI infrastructure demand to remain robust, but notes that investor focus is shifting. While 2025 rewarded companies primarily for AI-driven revenue growth, margins, free cash flow and profitability are likely to be the key differentiators in 2026 as markets assess the real economic value of AI.

Daryanani’s preferred “AAA” portfolio—Amphenol, Apple and Arista Networks—is described as a “set-it-and-forget-it” group, backed by strong execution and durable competitive advantages.

• Amphenol, up 94% in 2025, is expected to continue outperforming peers thanks to structurally higher incremental margins of around 30% and strong earnings growth.

• Apple, up 63% this year, is benefiting from improving iPhone momentum following the iPhone 17 launch and resilient Services growth in the low-to-mid teens. A key question for 2026 is how Apple monetizes its upcoming Siri upgrade.

• Arista Networks, up 19% in 2025, is seen as having upside to its AI revenue targets, with potential revenue acceleration in 2026 driven by strong AI networking demand, core business growth, and new customer ramps.

Overall, Evercore ISI believes these three companies combine proven track records, strong cash generation and clear AI leverage, positioning them well to outperform as the AI cycle matures.

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