Market commentary: May 2026

Investment performance

Looking at the year to 31 May, international shares and infrastructure were the drivers of overall returns. In recent months, and despite the US invasion of Iran, the US market remains in optimistic territory and continues to climb breaking records on the way. We are monitoring market psychology as it will turn to pessimism at some stage. When it does, we will move portfolios to a more conservative position. AI is the big story in investment markets and it’s always useful to know what fund managers are thinking…

Investing in AI – selective investing required*

Initial exuberance over AI’s transformative potential sparked investor fears that we were in a share market bubble and it was about to burst. But that concern has now been overshadowed by anxiety that the AI juggernaut will steamroll entire industries.

Investors have fled so-called “AI roadkill” companies that are expected to be rendered obsolete by AI, favouring old-economy companies that produce goods.

AI immune businesses
Companies involved in the business of real assets and physical production are perceived to have AI immunity. AI cannot for example make hamburgers or instal electrical wiring

Soaring demand for air travel and rising defence budgets around the world have created strong tailwinds in the aerospace and defence industries. Within the restaurant industry, consumers are still likely to go to restaurants to have humans serve them.

Vulnerable companies
Companies considered highly vulnerable to AI disruption include a wide range of software, financial and consulting industries. An example is the latest version of Anthropic’s Claude AI that can automate a range of research and legal tasks. Companies providing these services have suffered steep declines.

AI picks and shovels
You can’t build a new economy without old economy companies. The AI buildout relies heavily on makers of power generation and cooling equipment, utilities and mining companies. These are the proverbial picks and shovels supplying AI infrastructure.

At the heart of the AI buildout are semi conductors (chips). The flood of capital expenditure by hyperscalers** has created historic opportunities. Examples include Nvidia (graphic processing chips) and Broadcom (networking chips). Both companies posted record sales growth in 2026.

A stock picker’s market
As AI evolves, it will be beneficial for some companies and serve as a disruptive force for others. Whether an investor looks for opportunities among those companies whose shares have soared or companies whose shares have plummeted, the key to long term success will be selective investing supported by intensive research.

* Source: Summary of article produced by Capital Group.
** A hyperscaler is a massive cloud service provider that offers globally distributed computing and data storage services. They operate immense data centres and are the backbone of AI.

Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFP^CM), Director and Financial Adviser