The US stock market in 2025 was a season of plot twists and jump scares. In April, the S&P 500 index corrected by over 10% due to the Trump tariffs. By June, it ripped to fresh highs after President Donald Trump softened his stance and investors piled headfirst into anything even remotely AI-related. So far in 2025, the index is up by more than 17%, reaching a level of 6,878 by December 23. But more than half of those gains came from a few mega-cap giants worth $200 billion or more.

This sets the stage for a very different 2026. According to David Kostin of Goldman Sachs, the easy phase is over. The era of rising multiples is ending, and the next leg of the bull market will lean less on hype and more on hard earnings growth.

Not everyone is convinced returns will be exciting. Savita Subramanian of Bank of America warns that slowing share buybacks could cap S&P 500 gains at a modest 4% next year, with a target price of 7,100.

Jean Boivin of BlackRock says, "The market is moving from a policy-driven phase to a productivity-driven one." He suggests that as capital spending translate into results, the focus must move toward infrastructure.

Let’s look at four trends that will shape 2026 returns.

1. The AI bill comes due next year

For the past three years, markets treated AI like a free lunch. Productivity gains were assumed, and valuations ran ahead of reality. By 2026, hyperscalers are expected to spend over $527 billion on capital expenditure, sharply higher than earlier estimates of $465 billion. The money is pouring into chips, data centers, and power-hungry infrastructure, to keep chatbots like ChatGPT, Gemini, and Claude running smoothly, and to make sure they’re ready to handle a (highly disruptive) shift of economic activity from humans to machines.

The final bill may run into the trillions. The financing is coming from venture capital, debt and, lately, unconventional circular financing arrangements that have raised eyebrows on Wall Street.

A flood of debt sales from Big Tech could weaken the credit market on both sides of the Atlantic. Wall Street underwriting to fund AI and data centers is soaring, but would-be creditors are starting to worry about being compensated for the risks of a bubble. Tech firms are expected to float as much as $1.5 trillion of debt by 2028.

Morgan Stanley warns that this could push up borrowing costs as investors may demand higher returns to absorb the supply. KKR’s Raj Agrawal says, “Some of these investments are likely not going to work out, that’s just the reality when you have this much capital moving this fast.”

The gap between infrastructure spending and revenue generation is increasingly visible. Many companies funded AI expansion with debt, introducing new balance-sheet risks. Debt-funded AI spending is widening the divide between leaders and laggards, pushing investors away from firms where capex growth is not matched by cash flow. This led Meta to shift its focus from open source models to money-making ones.

2. Concentration risk rises as capital crowds into top companies

Beneath the noise is a structural problem: extreme concentration. Investors have crowded into “one dominant stock per sector” in search of safety. Nvidia in semiconductors and Eli Lilly in healthcare are prime examples. While fundamentals remain strong, overcrowding amplifies downside risk due to expensive valuation compared to its peers.

Dubravko Lakos-Bujas of JPMorgan says, “markets are becoming unbalanced, with too much money flowing into just a few popular stocks. When many investors pile into the same names, prices move more sharply." It also makes risk harder to manage, because in stressful periods, heavy selling can quickly push prices down.

2025 was “Trump 1.0 on steroids,” said Keith Lerner, chief investment officer and chief market strategist at Truist Advisory Services Inc., adding that he can’t recall another period when US political decisions triggered this much market volatility.

3. AI’s appetite for power is raising electricity costs

The power bill shock isn’t over. As the US heads into 2026, electricity prices are moving higher. Throughout most of the year, US electricity bills rose faster than overall consumer prices. By September 2025, electricity bills were up 5.1% YoY, compared with a 3% rise in broader consumer inflation.

Retail power rates jumped 7.4% in September 2025, pushing prices to a record 18.1 cents per unit, the steepest increase in nearly two years. With fuel costs climbing and demand staying firm, power bills for homes, transport and businesses are likely to rise further next year.

Electricity demand is rising far faster in Texas and the Mid-Atlantic than the national average. While US power sales are expected to grow about 2.2% annually, Texas demand could jump around 11%, driven by data centres, factories and crypto mining, while PJM demand is set to rise 4% in 2026, led by Northern Virginia.

Data center expansion is the primary driver. Global electricity consumption by data centers is projected to grow 17% through 2026. “AI’s surging power demand growth will be testing grid limits,” says Eduard Sala de Vedruna of S&P Global Energy. Utilities are being forced into large-scale infrastructure upgrades to meet this demand.

4. Diversification beyond mega-cap firms

The mega-cap firms now make up more than half of the S&P 500’s total value, a historic high. However, the market’s spotlight is shifting toward the “enablers” powering the AI boom. Industrial firms and semiconductor supply chains that provide copper, power equipment, cooling systems, and grid hardware are unglamorous but indispensable inputs to the AI and electrification buildout, and many still trade at far more reasonable valuations.

As a result, leadership is expected to rotate toward cyclical and value-oriented sectors. Solita Marcelli of UBS says, "Financials and healthcare are providing a broad foundation as policy uncertainty fades." Mike Wilson of Morgan Stanley adds that investors should favor "industrials and real assets" to capitalize on a "run-it-hot" economy focused on domestic manufacturing.

Semiconductor onshoring is driving a multi-year investment cycle. New US manufacturing plants are coming online, boosting demand for construction and engineering services. The push to make chips at home is driven by national security concerns flagged by the Trump administration. Because these factories are seen as critical infrastructure, spending is likely to continue even if the broader economy slows.

Thanks to these shifts, Michael Wilson of Morgan Stanley expects “market breadth to improve” as leadership shifts toward Financials and Industrials, describing 2026 as an “early-cycle” bull phase for the broader index.

The next phase of returns may favor companies solving physical bottlenecks. Power, cooling, and grid infrastructure providers are gaining attention. Denise Chisholm of Fidelity notes that “rotation and small caps” could outperform as leadership widens. In this environment, diversification is no longer just protection, but a source of opportunity.

The transition from 2025 to 2026 marks the end of the "imagination phase" of the AI bull market and the beginning of the "execution phase." While the previous year was defined by geopolitical plot twists and a narrow chase for mega-cap safety, the coming year will demand a different approach.