Jean Boivin – Head of BlackRock Investment Institute together with Wei Li – Global Chief Investment strategist, Nicholas Fawcett – Senior Economist, and Natalie Gill – Portfolio Strategist, all forming part of the BlackRock Investment Institute share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.
Key Points
Widening AI disruption : The software selloff shows the market is recognizing AI’s disruptive power, with the focus shifting to potential losers. We favor U.S. equities and selected credit.
Market backdrop : U.S. jobs surprised to the upside last week while core CPI met expectations. Underlying inflation pressures bolster the case for an extended Fed pause.
Week ahead : U.S. core PCE and Q4 GDP data this week could play into interest rate expectations, shaping financing conditions for the AI buildout.
The recent software selloff marks a dramatic shift in the AI narrative. A few months ago, the market debated whether AI was real. Today, it’s seen as an active threat to business models. We believe the hunt to sort the winners and losers reinforces AI’s massive buildout – and the borrowing spree by to finance it. The corporate micro spending has a macro impact, as increased leverage amplifies any upward pressure on interest rates. We like U.S. equities and credit, but get selective.
The market has been laser-focused on identifying companies exposed to AI disruption – and sorting out which ones it thinks will be able to evolve and adapt. The phenomenon is rippling through industry sectors, but software has been ground zero. New AI agents can take on software-linked tasks, for example, potentially eroding the competitive moat some software companies have enjoyed for decades. The change in the AI narrative has triggered indiscriminate selling of these firms, resulting in a marked performance divergence within tech sectors. Software providers have underperformed sharply in the past six months, as the chart’s red line shows. By contrast, sectors essential to the AI buildout – such as semiconductors and hardware – have advanced.
Indeed, we are still firmly in the AI buildout phase. The mega cap tech companies are spending heavily on chips, data centers and power infrastructure. This is a key reason why we still like infrastructure. What has changed is the market’s focus: it now asks how AI adoption will translate into revenues and profits. This sorting of winners and losers means it’s prime time for active investing, as we emphasized in our 2026 Global Outlook. The broad software selloff shows how markets can miss nuances in the near term. Case in point: Software companies with proprietary data, mission-critical workflows or strong customer relationships can leverage AI disruption and thrive, we believe. It’s key to apply such a granular lens beyond public markets. Software makes up a sizeable portion of many private equity funds, so AI disruption could be existential for some portfolio companies. Private credit is likely more shielded, in our view, as much of its software exposure is in short-term and senior-secured debt.
In emerging markets, mega forces trump traditional macro
As the sorting process accelerates, the AI builders are locking in long-term financing to fund capex. Alphabet recently raised $20 billion in the U.S. investment grade market and is reportedly preparing a 100-year sterling bond. The issuance bonanza reflects our Outlook’s leveraging up theme: Investment is occurring now, and revenues will follow later, with credit bridging the gap. The problem: Rising corporate borrowing adds supply to bond markets struggling to digest large public deficits. The AI mega force is so powerful that it drives the macro environment, compounding any upward pressure on interest rates.
Such pressures simmered in last week’s U.S. jobs report, which showed wage growth consistent with inflation settling above the Federal Reserve’s 2% target. The pressure could abate if AI productivity gains can break U.S. growth out of its longstanding 2% trend. We see a credible path for that to happen some day, but recent U.S. jobs data do not yet show that sectors exposed to AI are cutting hiring. We stay underweight long-term U.S. Treasuries as a result, and we’re selective in credit. The AI builders have largely tapped the U.S. investment grade market, so we prefer high yield and European bonds.
Our bottom line
We’re still in the AI buildout – but markets are now focused on a search for losers in the AI adoption phase. We favor U.S. equities, with selectivity crucial as dispersion widens. We prefer selected credit over long U.S. Treasuries.
Market backdrop
The S&P 500 fell on the week as the selloff of sectors seen as vulnerable to AI accelerated. U.S. 10-year Treasury yields hit a five-month low after U.S. January core CPI met expectations. This matched the picture from earlier in the week: an upside surprise of U.S. jobs data consistent with inflation settling closer to 3% than the Federal Reserve’s 2% target. That suggests monetary policy will remain restrictive, keeping markets highly sensitive to incoming inflation and growth data.
We’re watching U.S. core inflation this week for additional clues on the path of interest rates. Any changes would affect financial conditions for the ongoing AI buildout. We expect fourth-quarter GDP growth to moderate from the strong 4.4% annualized pace in the third quarter, while still reflecting strong underlying momentum.
Week Ahead
Feb. 18 : U.K. CPI, Japan trade balance
Feb. 19 : U.S. international trade & initial jobless claims
Feb. 20 : U.S. core PCE & Q4 2025 GDP advance, Japan CPI, and global PMI flash
BlackRock’s Key risks & Disclaimers:
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of 17th February, 2026 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.
Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.
MeDirect Disclaimers:
This information has been accurately reproduced, as received from BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
The financial instruments discussed in the document is intended for retail clients however, it may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.
