There’s a ‘once-in-a-generation opportunity’ in these stocks right now, no matter how the AI boom ends, market veteran says

In a Financial Times column on Sunday, the market veteran said investors have thrown up their hands amid the ongoing debate about whether the AI boom is a bubble about to burst, while other assets look too pricey as well.

“But there is a once-in-a-generation opportunity in global markets that could deliver strong returns regardless of how AI mania plays out,” he wrote. “The opportunity is in quality stocks, particularly those trading at relatively inexpensive prices.”

Those stocks—which have high returns on equity, stable earnings growth, and low debt—have historically traded at high valuations, but not right now, Sharma said.

They are currently 10 percentage points behind the broader market in developed economies and trailing by 17 points in emerging economies.

“Typically, quality stocks have delivered their best returns after similar (but rare) periods of underperformance, which is why this moment feels so ripe,” he added.

While the Magnificent Seven group of stocks has emerged as a symbol of the AI boom, some of them actually fall into the quality category, such as hyperscalers Alphabet and Microsoft, according to Sharma.

That’s despite the Magnificent Seven soaring by more than 300% since late 2022, when OpenAI launched today’s AI boom. Leading the charge is AI chip leader Nvidia, which has skyrocketed more than 1,000%. It now has a market cap of more than $4 trillion, making Nvidia the most valuable stock on the market.

The “real sweet spot” in quality stocks can be found after filtering out overvalued names, Sharma said, adding that the result is about 400 companies around the world out of the thousands that are publicly listed.

They include stocks in the U.S., China, India, the U.K., and Brazil. And after screening for market caps above $10 billion, it yields companies like Lockheed Martin, CVS Health, Tesco, AstraZeneca, FirstRand, and Lenovo.

This cream of the crop is trading at a 30% discount to the overall market, the widest gap since the late stages of the dotcom bubble, Sharma estimated.

“From such valuation lows, and using standard methods to estimate future returns, this quality class can be expected to deliver absolute annual returns of nearly 15% for the next three years,” he predicted. “That is well ahead of expected returns for other asset classes and, perhaps most importantly, doesn’t require taking a view on if and when the AI mania will end.”

Another big year for the S&P 500?

Meanwhile, Wall Street remains upbeat on the overall stock market and expects the S&P 500 to keep putting up big gains next year, helped by more easing from the Federal Reserve, tax cuts, and hundreds of billions in additional spending from AI giants.

Market guru Ed Yardeni sees the index soaring to 7,700 in 2026, indicating a 10% increase from his year-end 2025 view of 7,000.

GDP growth, consumption, and corporate profits have been chugging along, and Yardeni said the decade should avoid an economy-wide recession, while “rolling recessions” may hit different industries at different times.

Deutsche Bank is even more bullish and predicted the S&P 500 will finish next year at 8,000, representing a 17% jump from Friday’s close.

“We see equities continuing to benefit from the cross-asset inflows boom,” analysts wrote in a note. “With earnings continuing to rise and companies indicating they are sticking with their capital allocation plans we expect robust buybacks to continue.”

Elsewhere, JPMorgan expects the S&P 500 to end 2026 at 7,500, but added that it could go to 8,000 if the Fed keeps cutting rates.

Analysts cited above-trend earnings growth, the AI capital spending boom, rising shareholder payouts, and fiscal policy easing via tax cuts.

“More so, the earnings benefit tied to deregulation and broadening AI-related productivity gains remain underappreciated,” the bank said.