Navigating opportunity and uncertainty in a shifting global landscape
In today’s market, it’s easy to feel pulled in different directions. One day, headlines celebrate record highs; the next, they warn of economic uncertainty. Additionally, with the recent government shutdown, the backdrop feels even more complex.
At the same time, another powerful story is unfolding, one of immense investment and innovation: the artificial intelligence (AI) revolution. AI is dominating the conversation, capturing imaginations and helping to reshape the economic market before our eyes. This year has been marked by an astonishing wave of AI investment. $1 trillion1 in AI-related deals have been announced across the tech industry; fueling innovation, competition, and market momentum.
Without the capital expenditure related to AI, US GDP growth in 2025 would likely be significantly lower. This spending has provided a layer of resilience to US equity markets, helping to offset challenges from softening consumer spending and ongoing trade tariffs.
Investing in the Future, Today
Artificial Intelligence may end up being the revolutionary change of our time, on par with the invention of the internet and even approaching the Industrial revolution. The race to lead in AI is fierce, with most established technology companies as well as a handful of formidable new (and in many cases private) companies working at breakneck speed. Many companies are attempting to enable and improve the large language models (LLMs) and reasoning models that underpin AI while simultaneously partnering with a vast array of companies across multiple sectors to secure the semiconductor chips, power, land, specialized labor, among other critical ingredients, necessary to support the data center build out required for their massive AI ambitions.
The Equity SMA exposure to AI varies by strategy. For example, the Fidelity US Large Cap Strategy has almost 30% allocated to the technology sector (as of 10/31/2025), with many constituents in that sector representing investments in companies which are direct beneficiaries of the AI boom. Given that technology has been a long-time outperformer in the market and is among the most expensive sectors in the market, the strategy’s exposure to technology is lower than the S&P 500 Index exposure. This, however, is offset by AI related exposure in other sectors such as Industrials, where electrical equipment and machinery companies which enable data centers to be built out, represent an indirect, but arguably more compelling way to benefit from the same overarching theme.
The more income oriented and defensive Fidelity Dividend Income Strategy has a more modest roughly 15% allocation (as of 10/31/2025) to the AI heavy tech sector, where an absence of dividend yield and expensive valuations limit our opportunity set. However, this is offset by a combined nearly 20% allocation to the utilities and industrials sectors. This is where the strategy gets its indirect AI exposure. If the AI boom plays out as expected, it should create a once-in-a-generation surge in electricity demand. Data centers are incredibly power-hungry, and well-positioned U.S. utility companies stand to benefit significantly from this increased demand, which can translate into higher earnings and, in turn, growing dividends for investors.
Research-Driven. Opportunity-Focused
Spotting underappreciated investment opportunities in today’s market isn’t easy, but when done right, it can be incredibly rewarding. At Fidelity, we rely on the strength of our deep, fundamental research team to uncover these opportunities. Our analysts cover every sector, region, and company size, including private companies where we’ve invested.
But we don’t stop at the numbers. Using the research and the company earnings models as a base, we then complement that with insights from direct engagement with the management teams of our potential investments, their competitors, the supply chain including the important read across from other sectors that have a big impact.
Take AI as an example. For AI to grow as expected, it’s not just about semiconductors and software, it requires massive data centers, and a reliable power grid to support it all. By speaking with companies across this entire ecosystem, from chipmakers to gas turbine manufacturers to utility providers, we gain valuable insights that help us assess the true investment potential of AI.
This level of access and insight helps us cut through the noise, focus on what truly matters, and position our portfolios to pursue long-term, sustainable growth.
Smart Investing Means Being Selective
There’s no doubt that Artificial Intelligence (AI) is one of the most powerful investment themes of our time. From automating tasks to transforming industries, AI is reshaping the way we live and work, and investors have taken notice.
But here’s the catch: AI isn’t exactly a secret. Many stocks, especially in the technology sector, are already priced as if they’ll be the big winners of the AI boom. While some companies will thrive, others may struggle to keep up. And with so much capital pouring into AI, there’s a real risk of overinvestment, which could lead to excess capacity and disappointing returns. Given those concerns, our Equity SMA strategies have a meaningful allocation to AI related companies, but relative to the benchmark, we are currently underweight the AI heavy technology sector.
In short, we’re investing in AI, but doing it with care, selectivity, and a focus on sustainable returns.
What’s next for stocks
Since the global financial crisis of 2007–2008, U.S. equity markets have delivered a remarkable stretch of strong performance. In light of the above-average returns observed in recent years, it may be reasonable to consider the potential for more moderate growth in the period ahead.
That doesn’t mean we’re predicting a recession or a major economic shock. Instead, we’re acknowledging that markets may not continue to deliver the same outsized gains we've seen in the past. With that context, we are trying to build portfolios with companies with strong fundamentals, resilient business models, and the ability to navigate a wide range of economic outcomes. This helps reduce reliance on getting a single economic outcome (such as the direction of interest rates) right.
In short, we’re not chasing trends, we’re building portfolios that seek to weather uncertainty and deliver value over time.