2026: The year innovation becomes the economy

Key takeaways:

• Innovation has evolved from being a differentiator to the operating system of the modern economy; it is essential for every business.
• AI-driven automation and productivity power the new growth engine of the US economy and support a more balanced and durable expansion.
• Growth is stable but uneven across sectors, with gains concentrated among innovation leaders. The message is clear: companies must innovate to compete.
• We believe success in this environment requires disciplined, bottom-up analysis to identify where innovation strengthens returns on capital, widens competitive moats, and drives sustainable growth and alpha creation.

Three structural themes shaping 2026

1. The AI productivity flywheel

After years of experimentation, AI and automation are now producing measurable productivity gains in the technology, health care, financial services and industrials sectors. Efficiency improvements create feedback loops that drive faster innovation, greater operational leverage and reinvestment.

This opportunity extends beyond AI platform leaders. Value accrues to companies that apply AI to practical problems—from diagnostics and logistics to industrial design and financial analysis. Competitive advantages will hinge on proprietary data, deep domain expertise, and disciplined capital allocation.

2. The industrial renaissance

AI is transforming the physical economy. Manufacturing, transportation and construction are being redefined through robotics, automation and digital twins. These technologies improve throughput, reduce waste and enhance safety. The leading firms will combine physical scale with digital intelligence—automation providers, controls specialists, and industrial software innovators.

3. The energy evolution

The intelligence economy is profoundly energy-intensive.

Data-center expansion, electrification and the scaling of compute demand are reshaping global energy systems. Meeting these needs is catalyzing investment in grid modernization, energy storage and clean power generation.

We see opportunities across semiconductors, power management, utilities deploying smart grids, and renewables leveraging digital optimization. But energy remains a key constraint and a critical input into our investment thesis for the next phase of AI-driven growth.

CIO perspective: Innovation is the economy

As discussed in this paper, the line between “tech” and “non-tech” is blurring. Every company now operates within the digital economy, where AI and data analytics drive competitiveness, profitability and capital efficiency.

The investor challenge is to identify where innovation leads to lasting economic profit. That requires disciplined evaluation of business models, margin structures and balance sheets supported by conviction built on evidence.

We believe active, bottom-up investing is essential to determine where innovation truly enhances returns on invested capital and sustains long-term growth. Innovation may now be the economy, but fundamentals still determine performance.