As we expected, the concerns that emerged in the final months of 2025 and weighed on the AI trade are rapidly fading. Early earnings reports this season have shifted the focus back to what matters most: impressive growth and expanding margins. And worth noting, the equity rally is broadening. While our core AI portfolio is up a solid 15% YTD, AI derivative plays are matching or outperforming: Powering AI +23%, Nuclear Power +26%, and even our more defensive Aqua strategy +18% YTD (remember, data centers need water too).
Several factors explain this strong start to the year. First, funding concerns around major AI players are dissipating. OpenAI and Anthropic are reportedly raising tens of billions at record valuations ($830bn and $350bn), while xAI has just closed a $20bn raise at a $230bn valuation. As some of the largest spenders in the ecosystem, their strengthened balance sheets should definitively ease fears around AI capex sustainability.
Second, initial quarterly earnings confirm that data center buildouts continue to accelerate, while supply lags—driving significant pricing power across the value chain, from memory chips to power infrastructure.
Memory remains the clearest bottleneck. SK Hynix posted 66% revenue growth and a 137% surge in operating profit in the latest quarter, while Seagate guided to 34% revenue growth and over 100% EPS growth for the current quarter, far exceeding expectations. Micron has been unusually explicit, warning that memory shortages could persist beyond 2026 as AI demand absorbs capacity faster than new fabs can come online.
This strength is spilling over into semiconductor equipment, with ASML and Japan-based Advantest both delivering upside surprises. ASML reported record bookings of EUR13 billion (vs. EUR8 billion expected), with memory accounting for 56% of orders (vs. 47% in previous quarter). And Advantest raised its FY26 operating profit guidance by 21% to ¥454bn, well ahead of consensus.
Electric equipment suppliers are also benefiting. GE Vernova and Korea-based LS Electric both exceeded expectations on orders and guidance, with GEV posting +65% organic order growth and LS Electric guiding 2026 revenue growth and EBIT growth to 20% and 35% respectively, above consensus.
Momentum in gas turbines, transformers, and switchgear is unlikely to fade soon with dozens of power plants being launched or restarted to address the AI power challenge in the U.S. and most other geographies having no choice but to also increase electric generation. Crucially, this volume growth for equipment players is accompanied by sustained pricing power, as GE Vernova’s CEO reiterated. Shortages in turbines and transformers remain widespread, implying that higher pricing and margin expansion on today’s orders will only fully flow through in 2027–28, offering strong earnings visibility.
In sum, early earnings are sending a sign of confidence in the AI ecosystem after a difficult end to 2025. This is fully consistent with recent signals from hyperscalers, who have stepped up strategic investments and M&A—Nvidia ($20 billion in Groq), Meta ($2 billion in Manus), SoftBank ($4 billion in DigitalBridge), and Google ($4.75 billion in clean energy via Intersect). Against this backdrop, it would be surprising if Microsoft, Meta, and other hyperscalers did anything other than reaffirm robust capex plans for 2026.
