An Investor’s Guide to 2026

0:04The calendar is flipped to 2026. So where are we investing? Motley Fool money starts now.

0:19Welcome to Motley Fool Money. I'm Travis Hoyam, joined by Lou Whiteman and Emily Flippen. And since the calendar has now moved to 2026, we're recording this a couple of days early so that we can have a little bit of time later in the week. But we are thinking a lot about how we're investing in 2026, what the economy looks like, where there's value, maybe where we should be selling a little bit. So I wanted to start with a couple of different themes. And the biggest thing that we have to talk about, this has been the topic of the market for the last three years, that's artificial intelligence. Where are you looking at the AI trade in 2026, Lou?

0:54And you can take this in any number of different directions. Is there risk? Is there opportunity? Or is this just something that you're monitoring from the sidelines and going, you know what, this is accounting for 50 % of GDP growth, that's a pretty notable change in the way that we think about AI. The first thing is it's 2026 and wow, we're still doing this instead of AI. So cheers to us for that, right? The disruption has not hit us yet. Yeah, yeah, not yet. Famous last words. So you know what strikes me about AI, and I've been thinking about this a lot, is that, you know, the novelty is over.

1:27The magic is gone. When ChatGP2 first came on the scene and it was wow, It was magic. And it was all this talk about virtual friends, you know, doing all these chores for us. And, you know, just kind of what was new in magic before is now sort of mundane. And I think the answer from here is kind of boring. I think this is going to be the year of the agents of all of this stuff. Wasn't 2025 supposed to be the year of agents? Well, it was. And maybe that was the work. But here's what I think is happening here. Again, it's not going to be the cool, magical stuff. They're not going to be planning our vacations or doing these wow tasks, but there is just all over the place.

2:07We are just at the tipping point where so many little automations making so many little tasks 10 % better. I don't think that that is what we all hope for. Maybe the virtual friend, the imaginary friend is still coming, but I do think that matters. The theme this year, if it's a theme, it's specification over scale. It's no longer just this pure muscle, do all things, but just creating small AIs that can just make life easier all over the place. I think that is going to be the theme for 2026 in AI. And I think there is real good news for investors there because I think that this translates to revenue and profits better than the imaginary friend on our shoulder.

2:50It's interesting you put it that way because it seems like that would just be a continuation of the last 30, 40 years in computing and software. Is that the way that you're thinking about AI now and not just we're all going to be, we're not going to have to work anymore the way that Elon Musk says, you know, because robots or whatever are going to be doing everything for us. Is it just going to be more of an incremental technology improvement the way that we've seen mobile phones and PCs and Excel spreadsheets and things like that make things that we, that used to be commonplace in the 70s, 80s, 90s become just more efficient?

3:22Is that the right way to think about AI? Well, it's a dangerous question because it's open-ended. And I never want to say no to something if you give a long enough timeline. But yeah, I think you hit it on the head. This is how progress works. Progress is not flashy. Progress is not wow. Progress is incremental. And maybe we will get to that vision. I don't think it'll be nearly as quickly as the pundits or the wow, what do you think? I think just incremental improvement is how tech works when it works. Emily, when you look at artificial intelligence, where are you looking at real business models being created?

3:58And again, where does that risk reward lie? Yeah, I love that point. And to lose earlier comment about us still doing this as humans, not being replaced by AI yet, I think part of the reason is is because we're willing to go out there a little bit and come here with some takes because that maybe wouldn't be generated by a chatbot. And then you can hold me and Lou accountable for them a year from now when they inevitably end up wrong. But to your point, Travis, it's not so much about creating new businesses. It's about evolving the business models that exist today. So the thing that I'm watching with AI in 2026 is actually advertising.

4:32And I think that's the midterm game for AI and AI-centered companies or companies that are looking to implement it. It's not the data centers. It's not the CapEx, not enterprise usage. I think it's characterized by what the Mag 7 and our large tech companies are going to do with advertising as it relates to artificial intelligence. You know, there's only two of the Mag 7 and NVIDIA and Tesla that aren't dependent upon advertising revenue as a source of sales. And I'd actually argue that NVIDIA by proxy is actually really heavily dependent on advertising, given the fact that its larger customer base needs to sell ads in order to afford the hardware, right?

5:05Explain that, because I think OpenAI is really the big question here. And they're obviously the elephant in the room. They're the ones with, what is it now,$1.5 trillion in spending plans. A lot of that is NVIDIA chips. But they don't have that advertising business model. But do they need it? They desperately need it. And I think 2026 is the year where these individual consumers are going to start seeing ads and other integrations into their chat GPT. And it's not just chat GPT. It's Gemini. It's any company that has some sort of large language consumer-facing model is going to need to find a way to monetize the data that they have on the people using the application.

5:39even if that comes alongside a subscription fee. And to me, that screams ads. And without businesses generating ad revenue, they obviously, to a former point, can't afford hardware to continue to expand and grow their business and their data centers, which results in, by proxy, declining sales for NVIDIA. But it's not just OpenAI. I mean, look, you can look at Meta, another Mac 7 company, virtually 100 % of their sales are ad-based sales. Google is like 75 % plus of their sales are ads. So all of these companies are really heavily dependent upon that. And what's really interesting about the world of advertising is it's kind of a zero sum game, which is to say, just because OpenAI comes out and says, hey, you could put ads on chat GPT now, just using that as one example, doesn't mean that the ad budgets for companies that are buying placements suddenly increases.

6:26They still have a finite amount of money. Unless you've built out that, that's a longer game, right? Like the businesses that are built because Shopify and Facebook exists, but that doesn't happen in 2026. That's a five, 10 year story. Exactly. So hopefully, I mean, I expect the world for advertising, demand for advertising, the advertising size of the market, that is going to grow over time to your point, Travis. But thinking about it from the perspective of an individual business, if I'm into it, one of those businesses that just loves to advertise, especially around this time of year as we get into tax season.

6:57If I'm into it, I'm not saying, oh, I have new places to advertise. Therefore, my advertising budget for the entire year has increased proportionally to the number of places I can advertise. They probably still have a set budget. Let's say it's$100 million or whatever it may be. And they say, well, maybe I put less of that with Meta. Maybe I put more of that with OpenAI. And that's when it starts to get interesting for how these AI-based companies are going to monetize and advertise because it's not just about how effective ads are by usage of AI. It's actually how search and other interactions change as a result of where the money for ads is actually spent.

7:30Yeah. So are you able to extract the same number of dollars? What's the margin? I think that's going to be another one of these questions because it is more expensive to compute with AI than it is with traditional compute. And we've seen that with margins at companies like Meta and Alphabet over a long period of time. One of the things that you touched on, Emily, that I think is interesting is, are we at the point where this AI in general is proving to be much more of a sustaining innovation rather than a disruptive innovation? I think if you go back to that chat GPT moment, you have stocks like Alphabet dropping or going at least nowhere, despite the fact that they were growing revenue, because they thought that this was going to disrupt their business.

8:12This is going to disrupt search. It was how they make money. Are we at the point where we can say, you know what, there's going to be new businesses formed. This is going to be an opportunity for entrepreneurs, but it's not necessarily going to destroy a whole bunch of older tech businesses the way that we saw disruption when, let's say, Google and Meta, Facebook came around that really destroyed kind of the newspaper business. Is that the right way to think about it, at least where we sit today? I definitely think it is. And what's so interesting about where we sit today versus where we sat even 20 years ago when we were going through the dot-com crisis or that boom of the internet is that companies and their leaders and their decision makers are not unaware of the threat of disruption.

8:55I think everybody has become more aware. Disruption almost implies the idea that you're being taken aback by something that you didn't see coming. AI isn't so disruptive because we have companies that could see the future, so to speak, but saw the existential threat and then decided to innovate around it. So it's, to your point, much more sustaining than it is disrupting for these companies because they're investing in it. And they can invest in it. That's the big thing. Like with the newspapers, they didn't have the resources. These companies have the resources to throw out the problem. Whether or not it makes everyone 100 % a winner, I wouldn't say that.

9:27But I think that's the big difference is that so many of these companies have these virtual money printing machines that they can throw out the problem. Well, and the constraints seem completely different. If you're a newspaper, you had a geographic constraint. That was your monopoly. You know, Google's playing in the world, the global economy. AI is going to do the same. It's just a different shift, it seems like. Lou, I wanted to ask you about robotics because this is one of the things that we often talk about with AI and it's sort of this amorphous thing in the future. iRobot was the way to play this for a while.

9:58Obviously, that didn't work out. But there are sort of these moonshots that are happening, whether it's at Tesla. One of the companies I think is interesting that's still private is Figure. Is Humanoid Robots, is that going to be something that's going to start impacting the economy, whether we're buying them as consumers or businesses or adopting those kind of products? So at least for 2026, I'm still very skeptical about the dancing robots. I don't think, I mean, this is going to be similar. The videos are pretty funny to be fair. Oh yeah. I mean, they're awesome. But this is going to be similar to my boring answer on AI.

10:30I don't think this right now is about Rosie the robot from the Jetsons making us eggs or doing our dishes. But the great thing about AI, and I think we're going to hear a lot about robotics. We'll get to this in my radar stock even just to tease. But the great thing about AI is that all of these robotics that we have and all this automation we have were mostly single function machine, one task machines. And AI gives us the ability to make them multifunction machines and to do more with the existing technology. Again, I don't think that ends up with, you know, a robot butler in 2026, but I think all over the automation world, what we can do with automation and what we can do with what we've already invested in is just going to really accelerate.

11:19And that is a huge productivity thing. It might not be fun for consumers, but it's great for us as investors because it does, I think, over time, move the productivity curve. I know I'm looking for a robot that will clean up after my kids. So when that comes out, I will be an early adopter. When we come back, we're going to talk about the economy and what we think about jobs and where spending is going in the future. You're listening to Motley Fool Money. In January of 1915, Ernest Shackleton's ship, Endurance, became encased in the ice in the Weddell Sea. Through determination, grit, and savvy, Shackleton would lead his men through a brutal winter, then over hundreds of miles of Antarctic ice, followed by 800 miles across some of the roughest waters in the world.

12:02It is one of the most extraordinary and inspirational journeys in the history of exploration. Find this story and many others at the Explorers Podcast, available wherever you get your podcasts or at explorerspodcast.com. Welcome back to Motley Fool Money. We talked a little bit about AI, but look, none of this works. All the spending in AI doesn't really work if the economy tanks. And there's some signs of strength in certain places, signs of weakness in others. So Emily, where do you see the economy going into 2026? What's good, what's bad, and what's just worth watching as the year plays out?

12:38Well, I think I, like the average person, is very confused about what we're seeing today, which is to say that the data that we have is painting two entirely different pictures. If you just take the reported data at face value, it shows strong, real GDP growth that's rising and accelerating, driven largely actually by consumer spending, right? Inflation, while still higher than what the Fed wants, it's well-managed and it's inching downwards and we're easing back to those Fed targets. And the economy is still adding jobs and mortgage rates have eased. But when I say that, I know the average listener is probably going, excuse me, that's not the reality that I'm living right now.

13:14And underneath the data, I think we have a lot of confusion. There's economists and even members of the Fed themselves that are doubting the data, which is to say that not that the numbers are inaccurate, but not paying the full picture, saying that inflation could be understated, either due to the government shutdown or reporting metrics. Tariff impacts are yet to show their true teeth. Layoffs are actually accelerating. Powell himself said that the jobs data could be overestimated to the extent that the U.S. has actually been losing jobs to the majority of 2025. So this is to say, it forces me to watch a lot more than I probably would want to when I head into 2026.

13:45And what I'm having to do is look at ancillary data, right? Large-scale layoffs to which companies are required to report. That's great indicator of the job market. Credit spread or delinquencies show a lot about the average consumer as we expand to that K-shaped economy here in the United States. And obviously, CapEx from big tech companies. I mean, these in my mind are kind of like the canaries in the coal mine of the economy when you can't or won't or otherwise have doubts about the reported data. What is that K-shaped economy? We talk about that a lot, but can you just explain what exactly that is?

14:16Because I think that will be important as we go throughout the year. A lot of people have summarized it as like the declining middle class, but in effect, the way that we have seen the economy grow and expand over the course, especially over the last couple of years, but you can even expand it over to the past few decades, is that the rich get richer and the poor get poorer to an extent. And the people in the middle, so the average American who hasn't seen wage growth that matches inflation is effectively getting poorer and poorer. And so the big earners and the big spenders have been doing a lot to keep the economy afloat, which helps these reported numbers look good at face value because there's a subset of high spending, high-earning Americans that are doing well.

14:53But a majority of Americans, those people who aren't seeing those raises or those increases, are continuing to get worse year after year. Yeah. I saw a recent stat that something like the top 10 % of spenders actually come for almost 50 % of spending. So there is a have and have nots. Lou, what are you thinking right now? Well, yeah. And again, we have to kind of put everyone in buckets because we can't look at the individual. But really what we're talking about here is there's a lot of pressure on some people, but a critical mass of consumers are still employed, still spending, and really, we make decisions based on our own checkbook.

15:26And so, as long as that critical mass is there, whether or not it's a carve-out of the middle class or something, I think those are all worrisome things to talk about. But the bottom line is that, as of right now, there are enough people spending to keep things going. The question is, where from here? Does all of the job talk and all of these negative signs, does it build on itself, slowly swallowing more consumers and breaking down that critical mass? Or do we see inflation ease, which kind of helps with the jobs, and all of a sudden employment picks up and that critical mass kind of gets us through to the other side?

16:04It's really, really hard to know that. I think both are possible. You mentioned the data. The other thing right now is that, look, I don't even think you need to be a cynic to question data right now. They are saying that they are making methodology choices, which might be correct. There has been forever debates about how we do economic data. But when you do that, when you make changes, it makes apples to apples comparisons really hard. So I don't even think you have to be a conspiracy theorist to say, I don't know how to read the data. And that makes life a lot harder for us who are trying to have an opinion or a prediction of where things are going.

16:42Lou, you may raise an interesting point about, I think about this like a snowball. In 2008, 2009, when the economy got really bad, you'd have to go back to 2006, 2007 to see the start of this. And how does that play out? Let's just talk about that downside risk. Layoffs, it isn't one layoff announcement tells us that a recession has begun or something like that. It's this trickle that becomes uncertainty for executives. I remember sitting, listening to the CEO of 3M in, I believe it was 2008, saying, we don't know where the bottom is. And so we're just going to cut as much as we possibly can because we don't want to be SOL when we do hit that bottom.

17:23Is that sort of the risk is that this snowball starts, maybe AI spending cuts back, and we just don't know where it goes? Inevitably, we always swing too far in either direction, right? So, yes. I mean, I think the risk, when we started 2025 talking about the boiling frog economy, that everything's fine until it's not. And I think, you know, heading into 2026 is just going to be that same theme where everything right now, from an economic perspective, from a Wall Street perspective, is good enough. Wall Street doesn't have to act with Main Street. You know, that's one of the first lessons you learn.

17:57The stock market is not the economy. The stock market has kind of priced some of this pressure in. It's all fine until it isn't. And to your point that when this critical mass, when we stop seeing just enough people doing their economic activity, keeping things going, that's the point where we're in trouble. And by then, it's probably too late to avoid at least some impact. Definitely a lot to think about with the economy and AI in 2026. When we come back, we are going to play a game called Up or Down. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. in this section we like to play a little game and we're gonna see what Emily and Lou think about some specific stocks I'm gonna call this up or down the idea here is do you think these stocks are going to beat the market in 2026 or not I have 12 stocks on the list and I have asked them to split their votes 50 50 you can't just say everything is going to beat the market Lou I'm gonna have you go first with arguably one of the most important stocks for the stock market because it is the biggest piece of the S &P 500.

19:00NVIDIA, are they going to beat the market or not in 2026? An object in motion tends to stay in motion. I have them beating the market. Now, look, the huge caveat here. They've been going up well, well in excess to the market. You know, all they have to do is go up probably 70 % to beat. I think NVIDIA might do less well than it has the last few years, but still beat the market. That's a fair take, but I have to take the other end and say they'll lose to the market. And the only reason is, look, I'm rooting for NVIDIA here, But to counter Lou's point about an object in motion, typically, historically speaking, the largest company in the world is not the largest company in the world when you zoom out to a three year time period.

19:36NVIDIA has already been the largest company through the majority of 2025. I can't help but think 2026 is probably going to be a high bar. Let's move way away from AI to a potential falling knife. Target, Emily, beat the market or not? Beat the market. Look, I've been meaning to buy Target for the better part of the last year. I'm happy that I dragged my feet on that. I intend to make that purchase at some point in early 2026, but I think they can get the merchandising strategy right. And if discretionary spend comes back, they're well positioned. So I'm going the other way just because I think there can be a turnaround, but it's going to take more than a year.

20:09And in this context, I think one year is too short of a time frame. I'll also say, look, retail is really, really, really tough. Nobody has an inherent right to exist. Ask Sears, even Kohl's, some of the problems. I'm worried about target long term, and I don't think even if they do recover, it will be as quick as 12 months. Let's go to another popular stock. Chipotle, Lou, are they going to make a comeback in 2026? I think this is a tough, tough year for fast casual. Again, I'm not going to write them off, but I have Lou's here just because I think that there's a lot of choppiness. I think in general, fast casual, there's just too many people chasing this audience now, so it's hard for any of them to really, really thrive.

20:54That doesn't mean it can't be a good business long-term, but I'll take them losing this year. I think Chipotle had a tough year this year because they're coming off some really strong comps in the post-pandemic period. In 2026, their comps are going to be a lot easier of a hurdle to jump over, and I think expectations are too low. So I have them beating the market. What about another one that has confused me? I mean, this one could be up 100 % or down 50%, but Intel, where are they going, Emily? Oh, this is such a hard one. I have a tepid lose to the market because when I look at the chip space, I just don't know if they're the leader that they need to be to sustain market beating performance.

21:31But it's a tepid lose. It's a tepid lose. Yeah, and I have a tepid beat because I don't know what to think too. And it's weird to live in a world where I'm not sure we even need Intel. Imagine saying that 10 years ago, you know, but I do think they have the backing of the full faith and credit of the US government. They have that. They just closed the investment with NVIDIA. I do think there's wind at their back. Long term, I'm not sure I want to own this. I don't know where they shake out, but I think it'll be a better 2026 for them. What about another consumer company? And this gets to what we talked about earlier.

22:03What are consumers doing? Are they spending or are they not Lululemon? So this is another one that I need to caveat that to me, a year, it doesn't tell the whole story. I think they do beat. I think, you know, whatever momentum comes out of this proxy fight and the new CEO, I think there will be encouragement. I worry about this company long term as far as getting its mojo back. But I think for 2026, there are probably vibes go its way. I'm a lot less worried than Lou, but I do agree that I think Lulon beats over the course of the next year. Now, there have been a lot of macro changes that have impacted them, both in terms of competition and fashion trends.

22:40But there is no doubt in my mind that Lulon can work out their merchandising strategy. and I don't think that their brand has deteriorated to the point where it hurts their sales. Lululemon stock is down 45 % over the past year. I think that would have been a shocker coming into the year. We'll see if there's some value there, 15 times earnings. I don't know. Is that a value or a value trap? We'll have to see. That'll be a fun one to talk about. Along the same lines, Emily, is Nike going to make a comeback? This is almost the same story, but just a different brand. It is to an extent, and I have different answers here.

23:12I think Nike loses to the market. My concern with Nike is I actually don't see any desire to innovate to the extent that they need to to edge out the competition. And when I see companies like On Holdings just continuing to eat Nike's own lunch, I get really worried about the long-term viability of the brand. Yeah. And look, it's just a different market. It's so much more of a crowded market. To me, I think the company can be fine and the stock cannot be fine. And so I'm lose, too. I think that this is just running to stand still. so to speak. It's wild to think that Nike has become a little bit like Under Armour for us when we shop for gear for the kids, especially.

23:51Nike's where you find good deals. That's a tough spot to be in if you're in the consumer space. All right, let's go to AI, robotics, electric vehicles, autonomy, whatever you want them to be. Emily, is Tesla going to beat the market or lose to the market in 2026? Okay, this is where the timeframe catches up to me here, because here's what I'll say about anybody who's investing in Tesla. You're not doing so because you think it's going to do well in 2026. You're doing so because you think a decade, two decades, 50, 100 years from now, Tesla is going to continue to be an innovator that is leading the way in whatever it may be, robotics, cars, you name it.