AI Investing in 2026: Where the Biggest Opportunities Are

Let's bring in one of such friend, Jessica Inski, director of investor research at Stockbrokers.com.

Welcome back to the show.

Thank you for having me, JD.

Excited to be here and a very happy start to Q3.

I remember what we are here as well.

Talk to me about the biggest AI opportunities that you are seeing. that you are following right now, mega caps, infrastructure, something else altogether.

Well, I think that the hyperscalers are still an incredible opportunity and we have been rethinking about cap ex spend.

So with a lot of the 0% interest rate that we've had for quite some time.

We have been rewarding companies with buybacks and high free cash flow, and now they suddenly have time to do that with investments, and I think we need to be a little more open minded now that hyperscalers are investing in the fruits of their dividends.

And the way that we can actually see that is earnings expectations are increasing.

So the good in that is that it looks like price can lead us higher.

The risk in that is the bar is rather high, so we need to make sure that investment.

Earnings follow through, but the best performing sector, it's within from pre-Iran conflict to now is technology driven by socks, of course, and semiconductors.

So there's room for, for some normalization, and that rotation I think is healthy.

Jess, it's the first time you and I have spoken really since Kevin Warsh officially took the reins down at the central bank.

You and I, we love this stuff.

We do.

You think a Kevin Warsh-led Fed means for the general AI theme here on Wall Street.

It's an interesting crossover.

Maybe we're not talking enough about.

Well, I think it's positive for artificial intelligence, mainly because it's a task force where we're thinking about the impact of productivity.

So I think it's good because it's the administration that has a very good environment is number one.

There is this push and pull.

So if we think about capital markets and the Federal Reserve, they need each other.

We need capital markets from a supply and demand equation, and capital markets need the Federal Reserve for funding.

So they do rely on each other.

So I think it's interesting, but I do think a Kevin Worsch environment is allowing us to be open-minded.

He is rethinking data with his five task force.

We're understanding why, and there are.

I do have some concerns with the balance sheet and what he's going to do there, but I do appreciate that there is a task force so we can at least understand that, and he said he is going to communicate before there are any major changes, which is extremely important.

So I do think it's good for artificial intelligence because that requires open mindedness, and this is an open-minded Fed, and I think the biggest mistake that we can have within a market is not being open minded.

So positive all around.

Here's one of the big headlines of the day.

Meta developing plans for cloud.

Infrastructure business maybe directly pitting it against the AWSs, the Google Clouds, the Microsoft Azures of the world.

What do you make of a headline like this?

What does it mean for the state of the AI trade right now?

I think it goes back to agility and again openmindedness.

This caught me by surprise.

I was not expecting this, but we saw this with SpaceX when they started renting out their data centers initially for what was going to be for Grok.

We saw Meta pivot before.

So they're pivoting again into real revenue.

So being open minded and understanding that these companies are extremely agile, I think is important, and it's boding well for Meta, and I think it's good for AI, but it brings me back to AI infrastructure.

The picks and shovels are extremely important right now, and that's where I think the real opportunities are.

What do you make of the general AI Capex boom and how are you thinking about what we may see for the second half of 2026?

I want to see earnings.

Follow through, that's going to be extremely important.

There, last time we actually talked on your show, I did a deep dive into what causes recessions, and one of the first things that is looked at, according to the NBER is a decrease in GDI.

So that capE spend that we, that we're seeing, I would look for that to deaccelerate.

That doesn't look like it's happening anytime soon, but what I do see is companies getting creative.

When we are trying to raise cash.

We're issuing equity.

SpaceX immediately issued bonds.

I, I don't know if you were thrown off by that, but I, I certainly was.

Um, but like I said, that push and pull with capital markets and the Federal Reserve and central banks, what is causing a yellow flag or a red flag is the two-year yield that is still hitting 52 week highs.

The 10-year has come down since Kevin Warsh spoke, but the yield curve's flattening.

So the two-year It's still at, at a rate, almost it was at the height of the Iran conflict.

That, and if we, if you draw a chart of the S&P 500 and the two-year yield right underneath it, we can handle these elevated, an elevated yield, but the second we hit a higher high, that's when the market suddenly downturns.

And that's short-term inflation expectations.

So, really, the market is saying to me, We believe that this conflict could be resolved, that there is perhaps a peace deal on the table.

There's 60 days of headline risk, but we do not believe that it's removed from short-term inflation expectations.

Thus the elevated 2-year yield, and that's something to watch for.

The great Jessica Inskit, director of investor research at Stockbrokers.com, thank you for joining us as always.

Nice to see you again.

JD.

All right, Robbie will grab your mic.

We'll talk with you again soon.