Uncovering Winners in the artificial intelligence (AI) Boom
Diverging performance among technology stocks: In the first half of the year, AI-driven gains were heavily concentrated in hardware sectors such as semiconductors, memory, and data centers.
Infrastructure offers long-term potential: Resource-bottleneck areas like power, chips, and memory have long-term potential.
Monetization is the Test: The durability of the AI boom depends on whether tech giants can drive earnings through subscription models and cloud services.
The AI investment boom has provided strong momentum, with the S&P 500 Index and the Dow Jones Industrial Average reaching record highs in August and October 20261, which also driving U.S. equities to record highs this year. However, a granular look beneath the surface reveals that gains are primarily concentrated in a handful of mega-cap technology leaders. More notably, performance within the broader AI ecosystem has diverged significantly: AI infrastructure providers—most notably semiconductor and memory giants—have surged, while software stocks remain under pressure amid anxieties surrounding business model transitions, elevated capital expenditures, and challenges to their competitive advantages.
Hardware vs. Software: Diverging Strength Across the Industry Value Chain
This year has marked an inflection point of explosive AI adoption. Surging market demand for AI technologies has broadly fueled a construction boom in data centers and other infrastructure, further elevating demand for semiconductor equipment, key materials, and server processors. As global data centers continue to expand, the demand for core hardware—especially high-bandwidth memory and data storage equipment—has been pushed to historic highs.
With tight supply conditions expected to persist over the coming years, supply-demand imbalances continue to provide strong valuation support for market leaders. Among them, companies specializing in storage solutions for data centers have shown particularly stellar performance.
Conversely, the disruptive nature of generative AI has cast a shadow over traditional software models. Investors increasingly question whether rapid AI integration could erode the competitive advantages of traditional software companies, or even reshape and replace existing software platforms and business models.
The current focus of market attention centers on whether these software companies can successfully integrate AI technology into their product applications to enhance product value, or face the risk of being phased out by the market. This uncertainty is creating near-term pressure for the software industry.
Infrastructure: A Multi-Year Opportunity
Amid the fast-moving shift in AI market drivers, what strategies should investors employ for asset allocation in the second half of the year?
Blackrock points out in “2026 Midyear Global Outlook” that returns are already diverging across the AI value chain. Some opportunities sit outside the U.S. market, including emerging markets and small caps. BlackRock also emphasized that it will focus on investment themes arising from AI-related resource bottlenecks, as even we do not need to know which AI model wins, it is clear that the development of AI relies on power, memory, chips and data-center infrastructure.
It is worth noting that while the buildout of AI infrastructure may be accompanied by market volatility, this theme represents a multi-year, long-term investment opportunity. When deploying capital, investors should concurrently evaluate risk factors such as valuations, execution, policy shifts, and product cycles.
Monetization is the test
On the other hand, the sustainability of infrastructure demand largely depends on whether major technology giants will continue to increase capital expenditure. JPMorgan, meanwhile, stated that whether the AI boom will therefore depend not only on monetization but also on efficiency.
Can these companies grow revenues fast enough through cloud usage, enterprise software, and AI subscriptions to justify the massive investment? If revenues accelerate while costs decline and cash flow improves, the investments will be easier to justify. But if monetization disappoints or efficiency gains fail to materialize, companies may be forced to cut back on capex, creating a painful ripple effect across semiconductor and hardware stocks.
Source:
JP Morgan Asset Management, 2 June 2026, “AI Investing: Broadening Opportunity and the Monetization Test”
Blackrock, June 2026, “2026 Midyear Global Outlook”.
1Source: Bloomberg, as of August & October 2026.
Disclaimer
This document is for general information only. The information or opinion herein is not to be construed as professional investment advice or any offer, solicitation, recommendation, comment or any guarantee to the purchase or sale of any investment products or services. This document is for general evaluation only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person or class of persons and it has not been prepared for any particular person or class of persons. The investment products or services mentioned in this webpage are not equivalent to, nor should it be treated as a substitute for, time deposit, and are not protected by the Deposit Protection Scheme in Hong Kong.
The information or opinion presented has been developed internally and/or taken from sources (including but not limited to information providers and fund houses) believed to be reliable by WeLab Bank, but WeLab Bank makes no warranties or representation as to the accuracy, correctness, reliabilities or otherwise with respect to such information or opinion, and assume no responsibility for any omissions or errors in the content of this document. WeLab Bank does not take responsibility for nor does WeLab Bank endorse such information or opinion.
Investment involves risks. The price of an investment fund unit may go up as well as down and the investment funds may become valueless. Past performance is not indicative of future results. WeLab Bank makes no representation or warranty regarding future performance. Any forecast contained herein as to likely future movements in interest rates, foreign exchange rates or market prices or likely future events or occurrences constitutes an opinion only and is not indicative of actual future movements in interest rates, foreign exchange rates or market prices or actual future events or occurrences (as the case may be).
You should not make any investment decision purely based on this document. Before making any investment decisions, you should consider your own financial situation, investment objectives and experiences, risk acceptance and ability to understand the nature and risks of the relevant product(s). WeLab Bank accepts no liability for any direct, special, indirect, consequential, incidental damages or other loss or damages of any kind arising from any use of or reliance on the information or opinion herein. You should seek advice from independent financial adviser if needed.
Welab Bank Limited is an authorised institution under Part IV of the Banking Ordinance and a registered institution under the Securities and Futures Ordinance (CE Number: BOJ558) to conduct Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities.
This document is issued by Welab Bank Limited. The contents of this document have not been reviewed by the Securities and Futures Commission in Hong Kong.