Did artificial intelligence (AI) jump-start the current bull market? No. The ongoing bull market officially began in October 2022. OpenAI launched ChatGPT in the following month. However, it's probably fair to say that AI has been the fuel that has kept the bull market going for more than three years and counting.
You won't have any trouble finding warnings that the AI boom is nearing an end. Michael Burry of The Big Short fame is betting that an AI bubble will soon burst. Even tech CEOs sound cautious. OpenAI's Sam Altman said in August, "Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes."
I predict, though, that the AI boom won't end in 2026. And there's a simple reason why.
Image source: Getty Images.
The "gen AI paradox"
Granted, I can understand why many are skeptical. One of the primary arguments against the notion that AI-driven stock market momentum is sustainable is that companies aren't seeing significant returns on investment (ROI) from their generative AI (gen AI) initiatives.
Global consulting firm McKinsey & Company found that more than 80% of companies that have implemented generative AI haven't seen any material positive impact on their bottom lines. The firm refers to this as the "gen AI paradox."
Why does this paradox exist? Another finding from McKinsey is telling. Only 1% of the organizations the consulting firm surveyed earlier this year reported that they viewed their gen AI initiatives as "mature."
In particular, McKinsey found that fewer than 10% of gen AI implementations for vertical use cases, where the technology is used to improve specific business processes, have progressed beyond the pilot stage. Many organizations have implemented gen AI in horizontal use cases that help improve employee productivity on some tasks. McKinsey determined that these horizontal use cases have had only limited impacts on businesses because AI isn't functioning autonomously or proactively.
Another part of the problem is the limitations of current large language models (LLMs). They're sometimes inaccurate. They're driven by user prompts. Many LLMs also have "short memories" – they can't function well when interactions are lengthy.
The next AI wave
If the gen AI paradox remains the norm, I'd be on the same page as those who think an AI bubble exists and that this bubble will soon burst. However, I believe that we're in the early stages of the next AI wave, which will render the general AI paradox obsolete.
What is this next AI wave? The adoption of agentic AI. Instead of focusing on less impactful horizontal use cases, agentic AI is primarily concerned with automating complex business processes. I fully expect that this automation will improve profitability for companies.
Agentic AI could even boost revenue in some ways. For example, imagine AI agents that identify cross-selling opportunities based on their interactions with customers.
IBM (IBM +0.33%) and Salesforce (CRM +0.57%) anticipate that 1 billion AI agents will be deployed by the end of next year. Gartner (IT +0.92%) projects that agentic AI will be embedded in one-third of enterprise software by 2028. The technology research company believes that 80% of consumer service issues will be resolved by AI agents, independent of humans, and that this will reduce costs by 30% by 2029.
Companies that don't adopt agentic AI will be left behind. Savvy CEOs recognize this. As such, I expect significant investment in agentic AI in 2026 and beyond. This will keep the AI boom going, in my view.
Ways to profit from the agentic AI transformation
How can investors profit from the business transformation that agentic AI can bring? They can invest in stocks of companies that provide the tools making this transformation possible. They can also buy the stocks of companies that are integrating agentic AI into their products. I think two stocks stand out as winners in both arenas – Google parent Alphabet (GOOG +1.05%) (GOOGL +1.04%) and Microsoft (MSFT +0.14%).
NASDAQ: GOOGL
Key Data Points
Alphabet's Google Cloud and Microsoft's Azure cloud platforms offer products that help customers develop agentic AI solutions. Both Alphabet and Microsoft are also embedding agentic AI into their respective enterprise software suites.
NASDAQ: MSFT
Key Data Points
Sundar Pichai, CEO of Alphabet and Google, said in his company's third-quarter earnings call that his team is "seeing strong adoption" for agents built using its new Gemini Enterprise platform. Microsoft CEO Satya Nadella mentioned during his company's Q3 call that 80% of Fortune 500 companies are using Azure AI Foundry, which helps developers build AI agents. He also noted that Microsoft has integrated "agentic workflows into everyday tools like Outlook, Word, Excel, PowerPoint, and Teams."
Alphabet and Microsoft aren't the only stocks that are likely to benefit as the adoption of agentic AI skyrockets. However, I think they will be among the biggest winners.
