How to play the AI trade in 2026, silver and the metals trade pull back from record highs

Key Concepts

• AI Trade: Continued bullish sentiment and investment in Artificial Intelligence, extending beyond tech companies to industrial metals.
• Industrial Metals (Silver & Copper): Rising prices driven by demand for AI infrastructure buildout and supply constraints, raising concerns about potential bubble activity.
• Semiconductor Sector: Projected growth, exceeding $1 trillion in annual sales by 2026, with key players like Nvidia, Broadcom, and others.
• Market Broadening: Shift from concentration in the “Magnificent 7” stocks to broader market participation, particularly in sectors supporting AI.
• Private Credit: Distinction between investment-grade and leveraged lending, with a focus on de-risking and strong recovery rates in defaults.
• Data Centers: Significant investment opportunity with high demand for data, but also inherent risks related to technological advancements and energy consumption.
• Federal Reserve Policy: Debate over the necessity of further rate cuts and the impact of monetary policy on market confidence and borrowing.

Market Overview & AI Investment Surge

The stock market remains active despite the New Year holiday, driven by continued enthusiasm for the AI trade. Alphabet has reached record highs, and Nvidia recently committed $20 billion to acquire Grock, an AI chip startup. Silicon Valley startups have collectively raised a record $150 billion in funding this year, surpassing the previous high of $92 billion in 2021. Bank of America analyst VC Arya forecasts a 30% year-over-year increase in global semiconductor sales, projecting the sector to exceed $1 trillion in annual sales by 2026. Top picks in the semiconductor sector include Nvidia, Broadcom, Lamb Research, KLA, and Cadence Design Systems.

Industrial Metals & Potential Bubble Concerns

Investors are expanding their focus beyond pure AI plays to include industrial metals, specifically silver and copper. Silver reached record highs, driven by increased demand for AI infrastructure, supply constraints (including planned export restrictions by China starting in January), and its inclusion on the US critical minerals list. Silver was also in “backwardation” – where the spot price exceeds the futures price – indicating immediate supply tightness. Copper is also experiencing price increases due to similar demand factors. However, strategists are warning of a potential bubble, noting the parabolic price movements and historical precedents where similar surges were followed by crashes (specifically referencing 1979-1980).

Expert Perspectives: Round Table Discussion

Nez (Yahoo Finance Senior Reporter): Highlighted the significant price surge in silver, attributing it to industrial demand, supply concerns (including China’s export restrictions), and its designation as a critical mineral. He cautioned about the parabolic nature of the move and the potential for a correction, drawing parallels to historical market peaks.

Adam Coons (Winthrop Capital CIO): Distinguished between factors driving gold and silver prices (influenced by US dollar and liquidity flows) and the underlying demand for industrial metals supporting the AI trade. He advocated for investing in companies within the AI supply chain, particularly copper, while remaining cautious about the parabolic moves in silver and gold. He suggested a “barbell” approach, combining investments in large hyperscalers with smaller positions in specific AI-related companies.

Brooke Deal Palma (Yahoo Finance Senior Reporter): Connected the rise in industrial metals to Ed Yardeni’s prediction of a broadening market rally in 2026, moving beyond the “Magnificent 7” to the “impressive 493” other companies in the S&P 500. She pointed to companies like Exxon, G Vernova, NRG Energy, Constellation Energy, and Albermarle as potential AI beneficiaries outside of the traditional tech sector, particularly in the energy and grid upgrade space.

Apollo Global Management CEO Mark Rowan on the Fed & Private Markets

Federal Reserve Policy: Mark Rowan believes there is currently no need for further rate cuts, but understands the decision given economic data. He emphasized that the market ultimately determines the outcome, given global government borrowing and shifts in labor and goods flows, which are inherently inflationary. He stressed the importance of maintaining confidence in the financial system and bond market given the scale of government borrowing.

Private Credit Landscape: Rowan clarified the definition of private credit, distinguishing between investment-grade (the majority of the market) and leveraged lending. He argued that private credit generally outperforms public investment grade in both returns and safety. He noted that investors are often using levered lending as a de-risking strategy, shifting funds from equities and high-yield bonds. He emphasized that well-underwritten credit, even in default, typically has strong recovery rates.

Data Center Investment: Rowan highlighted the significant investment opportunity in data centers, driven by the exponential growth in data demand. He cautioned that the return on equity is dependent on contract renewals and that the future of data center technology is uncertain, creating both opportunities and risks. He stated, “Great fortunes will be made and lost in data centers.”

Tech Company Debt: Rowan expressed less concern about the debt levels of large hyperscalers, given their substantial cash flow. However, he cautioned about the debt of smaller intermediaries in the data center space, which lack the same financial stability.

"No New Toys" Mantra: Rowan acknowledged that Apollo’s previous strategy of “no new toys” has evolved as the private credit market has become more complex, with the emergence of six distinct markets requiring different approaches.

Data & Statistics

• Startup Funding: $150 billion raised by Silicon Valley startups in 2023, exceeding the previous record of $92 billion in 2021.
• Semiconductor Sales Forecast: 30% year-over-year increase in global semiconductor sales projected for 2026, exceeding $1 trillion in annual sales.
• Silver Price Surge: Silver prices increased by over $10 in a single session, reaching record highs.
• S&P 500 Target: Edgar Yardeni’s year-end target for the S&P 500 is 7,700.
• G Vernova Stock Performance: Up 100% year-to-date.
• NRG Energy Stock Performance: Up 75% year-to-date.
• Constellation Energy Stock Performance: Up significantly year-to-date.
• Albermarle Stock Performance: Up 76% year-to-date.

Conclusion

The AI trade continues to drive market momentum, expanding beyond traditional tech companies to encompass industrial metals and broader market participation. While concerns about potential bubbles exist, particularly in silver, the underlying demand for AI infrastructure and the potential for long-term growth remain strong. Investors are advised to diversify their portfolios, focusing on companies within the AI supply chain and considering a barbell approach combining large hyperscalers with smaller, more specialized players. The private credit market is evolving, with a focus on investment-grade lending and the need for careful analysis of data center investments. The Federal Reserve’s policy decisions will continue to influence market sentiment, but ultimately, the market’s confidence and the broader economic landscape will determine the long-term trajectory of growth.