If artificial intelligence is currently booming in the US stock market... (AI) Trading suddenly crashes, how should investors respond?
Vanguard's latest 2026 outlook report provides the answer: Over the next 5 to 10 years, value stocks and non-US developed market stocks will be the two best stock investments in the medium term if risks and potential returns are weighed, even though neither of these sectors are the booming technology sector today.
This asset management giant, which manages $11.9 trillion in assets, estimates that over the next 10 years, U.S. value stocks should return 7% annually, while non-developed market stocks should return 6%. Although neither of these sectors is what investors traditionally consider an " AI game." However, the company stated that both investments will begin to benefit from new technologies in the coming years.
"Valuations in both of these market segments are much more attractive and do not yet fully reflect the potential long-term benefits of adopting artificial intelligence . As AI spreads across all sectors of the economy, value-driven industries such as industrials, finance, and certain consumer sectors may be better positioned to achieve efficiency gains and revenue growth, making them more attractive in the medium term," the report stated.
Vanguard added that if the AI boom suddenly ends and the stock market falls into a bear market, these sectors could also become potential hedging tools.
Moreover, investors appear to be shifting towards value stocks and non-US stocks. Last month, the Vanguard S&P 500 Value ETF (VOOV) and the Vanguard FTSE Developed Markets ETF (VEA) rose 2.7% and 1.6% respectively, while the Vanguard Information Technology ETF (VGT) fell 1.4%.
The company further pointed out that non-US developed market stocks—including those from the UK, Japan, France, Germany, Australia, South Korea, and Switzerland—drove the US stock market throughout the year, with the VEA projected to rise 30.3% in 2025, while the S&P 500... The S&P 500 index rose by only 15%.
However, Vanguard did not warn of an AI bubble, but rather pointed out that the AI investment cycle may have only completed 30%-40% of its final peak. Nevertheless, the company stated that the risk of a tech stock correction is indeed increasing.
"Given investment rates and expected earnings growth, U.S. tech stocks are likely to maintain their momentum in 2026. But let's be clear: risks are increasing amid this boom, even though some metrics suggest it may be 'rational'," the report added.
Vanguard also stated that some of these risks include the emergence of new competitors that could replace the current AI leader, and massive capital expenditures on AI infrastructure that could reduce profitability.
For investors seeking to invest in U.S. value stocks and non-U.S. developed market stocks, in addition to the aforementioned Vanguard Fund, the company also stated that the iShares Core S&P U.S. Value ETF (IUSV) and Charles Schwab are also options. The Schwab International Equity ETF is also a good option.
(Article source: CLS)
