There’s a ‘once-in-a-generation opportunity’ in these stocks, no matter how the AI boom ends

In a Financial Times In a column on Sunday, the market veteran said investors have raised their hands amid the debate over whether the AI ​​boom is a bubble about to burst, while other assets are also looking expensive.

“But there is a once-in-a-generation opportunity in global markets that could deliver strong returns no matter how AI mania unfolds,” he wrote. “The opportunity lies in high-quality stocks, especially those that are trading at relatively cheap prices.”

These stocks — which have high returns on equity, stable earnings growth and low debt — have historically traded at high valuations, but not at the moment, Sharma said.

It currently lags 10 percentage points behind the broader market in advanced economies and 17 points behind in emerging economies.

“High-quality stocks have typically achieved their best returns after similar (but rare) periods of underperformance, which is why this moment feels so ripe,” he added.

While the Magnificent Seven stock group has emerged as symbols of the AI ​​boom, some actually fall into the quality category, such as hyperscalers Alphabet and Microsoft, according to Sharma.

This is despite the Magnificent Seven being up more than 300% since late 2022, when OpenAI kicked off today’s AI boom. Leading the charge is AI chip leader Nvidia, whose shares have risen more than 1,000%. Its market cap now stands at more than $4 trillion, making Nvidia the most valuable stock on the market.

The “true sweet spot” in high-quality stocks can be found after filtering out overvalued names, Sharma said, adding that the result is about 400 companies worldwide out of thousands listed on the stock exchange.

They include stocks in the US, China, India, the UK and Brazil. After examining market capitalizations of more than $10 billion, it produces companies such as Lockheed Martin, CVS Health, Tesco, AstraZeneca, FirstRand, and Lenovo.

The cream of the crop is trading at a 30% discount to the overall market, the biggest gap since the late stages of the dot-com bubble, Sharma estimates.

“At the lowest levels of valuation, and using standard methods to estimate future returns, this quality category is expected to achieve absolute annual returns of approximately 15% over the next three years,” he predicted. “This far outpaces the expected returns of other asset classes and, perhaps more importantly, does not require taking a view on whether and when the AI ​​mania will end.”

Another big year for the S&P 500?

Meanwhile, Wall Street remains bullish on the overall stock market and expects the S&P 500 to continue making big gains next year, supported by further easing from the Federal Reserve, tax cuts, and hundreds of billions in additional spending from AI giants.

Market expert Ed Yardeni expects the index to rise to 7,700 in 2026, suggesting a 10% increase from his end-2025 view of 7,000.

Growth in GDP, consumption and corporate profits were accelerating, and Yardeni said the decade should avoid an economy-wide recession, while a “persistent recession” could hit different industries at different times.

Deutsche Bank is more optimistic and expects the S&P 500 to end next year at 8,000, which represents a 17% jump from Friday’s close.

“We see stocks continuing to benefit from a surge in inflows across assets,” the analysts wrote in a note. “As earnings continue to rise and companies indicate they are committed to their capital allocation plans, we expect strong buybacks to continue.”

Elsewhere, JP Morgan expects the S&P 500 to end 2026 at 7,500, but added it could reach 8,000 if the Fed continues to cut interest rates.

Analysts pointed to above-trend earnings growth, a boom in capital spending on artificial intelligence, higher shareholder payouts, and easing fiscal policy through tax cuts.

“Furthermore, the earnings benefits associated with deregulation and expanding productivity gains associated with AI remain underappreciated,” the bank said.