After three consecutive years in which mega-cap AI-linked names carried the Nasdaq, the mix of winners may be starting to change.

2026 is the "show me the money" year. Any hint of doubt about whether tech companies were correct to spend nearly US$700 billion on AI last year could have a major impact on market sentiment.

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Quick facts

• Global AI capex is projected to exceed US$600 billion in 2026.
• The total addressable market (TAM) for AI data centre systems is estimated to exceed US$1.2 trillion by 2030.
• Nvidia, Microsoft and TSMC are all trading below analyst fair value estimates, despite surging revenues.
• Broadcom's AI chip division is targeting US$100 billion in AI revenue by 2027.

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What is powering the AI trade?

Multiple macro forces are likely to underpin the AI investment theme through 2026. The direction of US interest rates, the scale of AI infrastructure spending and the geopolitical backdrop are all likely to matter.

Rates and valuations

The Federal Reserve delivered 75 basis points (bps) of rate cuts in 2025, and markets expect another 50 bps in 2026. Lower rates can reduce the discount applied to future tech earnings and typically support growth stocks, including AI-linked names.

Infrastructure spending and earnings expectations

On the spending side, Nvidia CEO Jensen Huang has said data centre operators could spend up to US$4 trillion annually by 2030, and AI capital spending is projected to reach US$571 billion in 2026 alone.

However, markets appear to have already priced in much of this optimism. Analysts are projecting 14% to 16% annual earnings per share (EPS) growth in 2026. That would require S&P 500 stocks outside the Magnificent 7 to roughly double the pace of earnings growth recorded in 2025.

Geopolitics and export controls

Geopolitics could also shape the outlook. US-China export controls on AI chips, along with reduced access to key international buyers, could weigh on data centre growth projections.

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Trade the US earnings season

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Top AI-linked stocks

Nvidia (NVDA) 

Nvidia remains the clearest expression of the AI trade. It holds a wide economic moat thanks to its market leadership in GPUs, hardware, software, and networking tools. 

Goldman Sachs and Morgan Stanley both carry price targets near $250 on NVDA, with Goldman's call based on a 2027 revenue forecast of over $380 billion. Bank of America sits in the $275 camp, effectively pricing in more AI upside on 2027 earnings.

At 21.6 times forward earnings, Nvidia is now trading below the broader S&P 500's multiple. Key risks include the overhang from US–China export restrictions and any softening in data centre capex guidance from major cloud providers.

Microsoft (MSFT)

Microsoft is down around 25% from its all-time high. During the second quarter of fiscal year 2026, Azure's revenue increased 39% year over year, and the company holds a US$625 billion backlog of contracted usage still to come. 

The gap between the stock's recent performance and its underlying revenue growth has drawn attention from analysts, though elevated valuations across the broader tech sector remain a risk to watch.

Broadcom (AVGO)

While Nvidia makes broad-purpose GPUs, Broadcom is winning business by going bespoke, designing custom AI chips tailored specifically to the needs of individual hyperscalers like Google and Meta.

During Q1 of FY2026, Broadcom's AI semiconductor division grew at a 106% pace to US$8.4 billion, and by the end of 2027 it expects its AI chip revenue to reach more than US$100 billion.

Broadcom trades at a significant premium to the broader market, which could amplify any downside if growth expectations are not met.

TSMC (TSM) 

Almost every major AI chip is manufactured by TSMC. The company holds approximately 70% market share in chip foundry, making it the single most critical piece of infrastructure in the entire AI supply chain. 

TSMC sales are projected to increase by 30% in 2026, with gross margins expected to remain above 60% as new fabrication capacity comes online.

The primary risk is geopolitical: any escalation in Taiwan Strait tensions could weigh heavily on the stock regardless of its underlying fundamentals.

Vertiv (VRT)

Less prominent than the semiconductor giants, Vertiv provides the power management, cooling, and data centre infrastructure that keeps AI hardware running. 

Nvidia, Broadcom, and Vertiv sit at different points in the AI build-out, including compute, custom silicon, networking and physical infrastructure.

Vertiv's revenue is tied to overall AI capex rather than any single chip maker, which gives it a different risk profile to the names above.

Corning (GLW)

Corning's stock rose 84% in 2025 thanks to surging demand from data centres for its fibre optic cables. Its optical communications segment has grown 69% YoY. 

At a Price-to-Earnings (P/E) ratio of roughly 37x, Corning trades at a discount to Nvidia and Broadcom while still carrying direct exposure to AI infrastructure spending. However, its valuation depends heavily on continued capex from the major hyperscalers.

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US market drivers for March 2026

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AI trades beyond the headline stocks

Energy and utilities

Training large-scale AI models is extraordinarily energy-intensive. A typical 1 gigawatt AI data centre facility requires upwards of US$60 billion in capital expenditure, with roughly half going directly to hardware. Utilities exposed to data centre power demand could also be affected by the AI build-out.

International spillover

South Korea's Kospi surged 76% in 2025 due to AI-linked chipmakers like SK Hynix. Japan's Topix, Germany's DAX, and the UK's FTSE 100 also saw gains of more than 20%. Memory supplier Kioxia was the world's best-performing stock, surging 540%.

Data centre infrastructure

Companies like Emcor, which provides critical electrical, HVAC, and power infrastructure to data centres, reported its contracted backlog surged 31.2% year over year to a record US$13.25 billion. These companies can offer different exposure to the AI capex cycle, but they carry their own execution, backlog, margin and valuation risks.

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What could derail the AI trade?

Valuation compression

Broadcom trades at about 50x earnings and AMD at 56x. Any disappointment in forward guidance could trigger a sharp contraction in multiples.

The return on investment test

Companies are investing today on the assumption that highly profitable business applications of AI will emerge over time. If the timing or scale of those returns disappoints, the AI trade could face pullbacks.

Index concentration

The 10 largest stocks in the S&P 500 account for about 40% of the index's total value. A rotation out of mega-cap tech could disproportionately affect broad indices.

Efficiency disruption

China's DeepSeek recently published research suggesting large language models may be developed more efficiently than previously assumed. If AI can be built with less compute, demand for GPUs and data centre hardware could fall short of current forecasts.

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Bottom line for traders

The AI trade is maturing but far from over. 2026 is shaping up to be a more nuanced chapter, spreading across the full AI value chain. 

The US earnings season will be closely watched for evidence that the hundreds of billions being poured into AI infrastructure are beginning to generate the anticipated returns.

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All data points referenced in this article were verified against primary sources on 18 March 2026.

ASX defence stocks are back on more watchlists and according to the Stockholm International Peace Research Institute (SIPRI), global military spending reached approximately US$2.718 trillion in 2024, up 9.4% in real terms.

Australia’s current defence settings are set out in the 2024 National Defence Strategy and related investment planning documents, which outline long-term capability funding priorities. Furthermore, Canberra has pointed to A$330 billion of capability investment through 2034, including added funding for surface combatants, preparedness, long-range strike and autonomous systems.

Here is the part most people miss: not all ASX defence stocks are the same trade. Some sit close to naval shipbuilding. Some are counter-drone names and some are smaller, higher-risk operators where one contract may matter much more than the market assumes.

5 volatility questions Aussie traders are asking right now

These five names are not a buy list, rather they are a practical watchlist for investors trying to understand where procurement momentum may actually show up on the ASX.

1) Austal (ASX: ASB)

Austal is one of the ASX-listed companies most directly exposed to Australia’s naval shipbuilding pipeline, although contract execution, margins and delivery timing remain important variables.

They aren't just winning random contracts; they have signed a massive legal agreement (the Strategic Shipbuilding Agreement) that makes them the official partner for building Australia's next generation of mid-sized military ships in Western Australia.

In February 2026, the government gave Austal the green light on a $4 billion project. This isn't for just one ship, it’s for 8 "Landing Craft Heavy" vessels. These are huge transport ships (about 100 metres long) designed to carry heavy tanks and equipment directly onto a beach. But here is the part most people miss, shipbuilding is a marathon, not a sprint.

As you can see in the delivery timeline, while construction starts in 2026, the final ship won't be delivered until 2038. For an investor, this means Austal has a "guaranteed" stream of income for the next 12 years, but they have to be very good at managing their costs over that long period to actually make a profit.

2) DroneShield (ASX: DRO)

If you have seen footage of small drones disrupting modern battlefields, DroneShield is building part of the "off switch". Its focus is counter-drone technology, including systems that detect, disrupt or defeat drones using electronic warfare, sensors and software-led tools, rather than relying only on traditional munitions.

By early 2026, DroneShield had moved beyond the label of a promising start-up and into a much larger commercial phase. It reported FY2025 revenue of A$216.5 million, up 276% from FY2024, and said it started FY2026 with A$103.5 million in committed revenue.

One point the market may overlook is the software layer in the model. DroneShield reported A$11.6 million in Software as a Service (SaaS) revenue in FY2025 and said it is working towards SaaS making up 30% of revenue within five years. Its subscription model includes software updates for deployed systems, which adds a growing stream of recurring revenue alongside hardware sales.

Among ASX defence stocks, DroneShield is one of the most direct ways to follow the counter-UAS theme. It is also one of the names where sentiment can swing quickly, because growth stories can rerate both up and down when order timing changes.

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3) Electro Optic Systems (ASX: EOS)

EOS builds both the "brain" and the "muscle" for military platforms. It is best known for remote weapon systems, which allow operators to control armed turrets from inside protected vehicles, and for high-energy laser systems aimed at counter-drone defence. EOS has said its unconditional backlog reached about A$459.1 million in early 2026, following a series of contract wins through 2025. That points to a much larger base of secured work, although delivery timing and revenue conversion still matter.

EOS signed a €71.4 million, about A$125 million, contract with a European customer for a 100-kilowatt high-energy laser weapon system. EOS says the system is designed for a low cost per shot and can engage up to 20 drones a minute. The Australian Government has set aside A$1.3 billion over 10 years for counter-drone capability acquisition, and EOS has disclosed that it was part of a successful LAND 156 bid team. That does not guarantee future revenue, but it does support medium-term visibility in a market the company is already targeting.

EOS reads as a rebound story, but one that still depends on execution. The company has reoriented around remote weapon systems, counter-drone systems and lasers, all areas tied to stronger defence spending. The key question is whether it can keep converting backlog and pipeline into delivered revenue while maintaining balance-sheet discipline.

4) Codan (ASX: CDA)

Codan is sometimes left out of casual defence stock lists because it is more diversified. That may be an oversight. In its H1 FY26 results, Codan said its Communications business designs mission-critical communications for global military and public safety markets. Communications revenue rose 19% to A$221.8 million. The company also said DTC delivered strong growth from defence and unmanned systems demand, with unmanned systems revenue up 68% to A$73 million. Codan said about half of that unmanned revenue was linked to operational defence applications in conflict zones.

This is where the story becomes more nuanced. In a basket of ASX defence stocks, Codan may offer a different profile, with less pure headline sensitivity, broader operating diversification and meaningful exposure to military communications and unmanned systems without being a single-theme name. That diversification may also mean the stock does not always trade like a pure-play defence name.

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5) HighCom (ASX: HCL)

HighCom sits at the speculative end of this list, and it should be labelled that way. The company says its two continuing businesses are HighCom Armor, which supplies ballistic protection, and HighCom Technology, which supplies and maintains small and medium uncrewed aerial systems, counter-uncrewed aerial systems, and related engineering, integration, maintenance and logistics support for the ADF and other aligned regional militaries.

In H1 FY26, revenue from continuing operations fell 59% to A$10.9 million, while EBITDA moved to a A$5.4 million loss from a A$1.9 million profit a year earlier. HighCom also disclosed A$5.1 million in HighCom Technology revenue, including A$3.5 million from small uncrewed aerial systems (SUAS) spare parts and A$1.6 million from sustainment services provided to the Australian Department of Defence.

So yes, HighCom is one of the more financially sensitive ASX defence stocks on the board. But it is also the kind of smaller name that can show how procurement filters down into support, sustainment and specialist protection gear.

Key market observations

• Track program milestones, not just political headlines. Contract awards, manufacturing starts, delivery schedules and sustainment work often matter more than a single announcement day.
• Separate pure-play exposure from diversified exposure. DroneShield and EOS are closer to concentrated defence technology themes, while Codan brings communications exposure within a broader business mix.
• Watch sovereign capability themes in Australia. Austal and EOS are tied to local manufacturing, integration and Australian supply chains, which supports the broader sovereign capability theme in this group.
• Pay attention to balance sheets and cash conversion. Procurement momentum can be real even when timing gets messy. HighCom's latest half is a reminder of that.

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Risks and constraints

Defence headlines can look immediate. Earnings usually are not. Austal's major naval work stretches into the next decade. EOS contracts are delivered over multiple years. DroneShield's order flow appears strong, but the company still separates committed revenue from broader pipeline opportunity. HighCom shows the other side of the coin. Exposure to procurement does not automatically translate into smooth financial execution.

References to ASX-listed defence stocks are general information only, not a recommendation to buy, sell or hold any security or CFD. These stocks can be highly volatile and are sensitive to contract timing, government policy, geopolitics, execution risk and market conditions. Backlog, pipeline and revenue expectations are not guarantees of future performance.

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Three central banks are deciding rates simultaneously, Brent crude is swinging wildly around US$100 a barrel, and a war in the Middle East is rewriting the inflation outlook in real time. Whatever happens this week could set the tone for markets for the rest of 2026.

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Quick facts

• The Reserve Bank of Australia (RBA) announces its next cash rate decision on Tuesday, with markets now pricing a 66% chance of a second hike to 4.1%.
• Some analysts have warned the Iran war could push US inflation to 3.5% by year-end and delay Fed rate cuts until September, making this week's FOMC dot plot the most closely watched in years.
• Brent crude is flirting with US$100 a barrel after Iran launched what state media described as its "most intense operation since the beginning of the war."

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RBA: Will Australia hike again?

The RBA raised the cash rate for the first time in two years to 3.85% at its February meeting after inflation picked up materially in the second half of 2025. 

The question now is whether it moves again before even seeing the next quarterly CPI print, which isn't due until 29 April.

Deputy Governor Andrew Hauser acknowledged ahead of the meeting that policymakers face a genuinely divided decision, shaped by conflicting economic signals at home and growing instability abroad. 

Financial markets currently assign around a 66% probability to another hike, with a May increase considered virtually certain regardless of what happens Monday.

Key dates

• RBA Cash Rate Decision: Tuesday 17 March, 2:30 pm AEDT
• Governor Bullock press conference: Tuesday 17 March, 3:30 pm AEDT

Monitor

• Any reference from Bullock to further hikes being likely in May
• AUD/USD immediate reaction.
• ASX banks and REITs.

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FOMC: Hold likely, all eyes on the dot plot

The FOMC meets on March 17–18, with the policy statement scheduled for 2:00 pm ET on March 18 and Chair Jerome Powell's press conference at 2:30 pm. CME FedWatch shows a 99% probability that the Fed holds rates at 3.50% to 3.75%. 

The real action is in the Summary of Economic Projections (SEP) and dot plot. The current median dot shows one 25-basis-point cut for 2026. If it shifts to two cuts, that is dovish and bullish for risk assets. If it shifts to zero cuts or adds a rate hike into the projection, markets could react in the other direction.

Further complicating matters, Powell's term as Federal Reserve Chair expires on May 23, 2026. Kevin Warsh is the leading candidate to replace him, viewed as more hawkish on monetary policy. Any comment from Powell on this transition could move markets independently of the rate decision itself.

Key Date

• FOMC Rate Decision + SEP/Dot Plot: Thursday 19 March, 4:00 am AEDT
• Powell press conference: Thursday 19 March, 4:30 am AEDT

Monitor

• Powell's language on oil and tariff inflation.
• 2-year Treasury yield reaction.
• CME FedWatch repricing for any shift in the September cut probability.

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Bank of Japan: Further tightening could be brought forward

The BOJ meets on March 18–19, with the decision expected Thursday morning Tokyo time. The current policy rate sits at 0.75% (a 30-year high), and the January 2026 meeting produced a hold in an 8-1 vote.

Governor Ueda has categorised the March meeting as "live," noting the timeline for further tightening could be "brought forward" if Shunto spring wage negotiations yield stronger-than-expected results. 

Those results are due to begin flowing in during the week, making them the critical input for the BOJ's decision. Nomura expects 2026 Shunto wage hikes to come in around 5.0%, including seniority, with base pay growth of approximately 3.4%. If results confirm that trajectory, the case for a March hike strengthens considerably.

The complication is the global backdrop. Japan imports roughly 90% of its energy needs, and oil around US$100 per barrel is pushing up import costs and threatening to add inflationary pressure. A BOJ hike into a global oil shock would be an unusually bold move. 

Most market participants still lean toward a hold at this meeting, with April or July seen as the more likely timing for the next move.

Key Date

• BOJ Policy Rate Decision (currently 0.75%): Thursday 19 March, morning AEDT

Monitor

• Shunto wage results as the primary trigger for a March hike.
• Ueda press conference language and forward guidance on April and July.
• USD/JPY reaction.

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Oil: Continued volatility

Brent crude briefly touched US$119.50 per barrel earlier in the week before dropping 17% to below US$80, then rebounding toward US$95 on mixed signals from Washington about the Strait of Hormuz. 

As of Thursday, Brent was back over US$100 as Iran launched fresh attacks on commercial shipping and the IEA reserve release failed to bring meaningful relief.

In the scenario where a longer conflict inflicts damage to energy infrastructure, analysts estimate CPI could rise to 3.5% by the end of 2026, with gasoline prices approaching US$5 per gallon in the second quarter.

For this week, oil acts as a macro meta-variable. Every geopolitical headline, ceasefire signal, tanker attack, reserve release, and Trump comment could move equities, bonds and currencies in real time.

Monitor

• Any resumed Strait of Hormuz tanker flow.
• IEA emergency reserve release.
• Trump statements on Iran.
• Energy sector equities.

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