Positioning for the great AI race

Gareth Hughes | BlackRock Australia

After lagging last year amid concerns around elevated valuations and AI-related capital expenditure, US technology stocks have regained ground in early 2026. The Nasdaq 100 Index has delivered more than 15% gains year-to-date¹, supported by improving earnings sentiment that has helped stocks absorb pressure from rising oil prices and bond yields.

April’s earnings announcements from major technology firms have reinforced the sector’s underlying strength. While some companies flagged rising investment costs tied to AI infrastructure, revenue growth has remained robust – particularly across cloud computing, semiconductors and platform businesses. Rather than signalling weakness, this divergence suggests a reshaping of leadership within the sector.

Investor demand is also showing signs of recovery. Flows into technology-focused ETFs have turned positive in 2026, reversing some of the outflows seen in the final quarter of last year as investors rotated into value sectors.

In the US, ETFs focused on the technology sector have generated around US$6 billion in net inflows so far in 2026.² In Australia, investors have jumped back into tech-heavy S&P 500 Index exposure, with hedged and unhedged US equity exposures taking in around $650 million in April, reversing $231 million of outflows in March.³

Tech ETF flows are picking back up after subdued flows last year

iShares US technology ETF flows, 2025-2026

Source: BlackRock data as of 30 April 2026. Based on industry-wide monthly flows for US listed and US domiciled ETFs that invest in the technology industry, including internet, semiconductors and cyber security.

The story continues: AI drives divergence

The key theme shaping the US technology sector in 2026 is not whether AI will drive growth, but which companies will benefit most. Mega-cap firms like Amazon and Alphabet⁴ with established platforms and strong balance sheets continue to lead, leveraging their scale to fund large AI investments while smaller software providers face increased competitive pressure as AI reduces barriers to entry in coding and development.

This dynamic is creating a more selective environment for investors, where fundamentals and execution matter more than broad thematic exposure. Adequate exposure to mega-cap stocks is a key consideration, with BlackRock US research indicating the average adviser’s model portfolio is around 7% underweight large caps versus the global equity benchmark.⁵

Why the outlook remains constructive

Despite near-term volatility, several factors support a positive outlook for US technology:

• Earnings resilience: April’s results highlight sustained demand across key segments
• AI monetisation: Companies are increasingly translating AI investment into revenue growth
• Balance sheet strength: Large tech firms retain significant cash reserves, enabling continued innovation

Technology’s renewed leadership is also evident in relative performance and capital allocation trends. Growth-oriented sectors have begun to outperform defensives, while ETF flows indicate investors are repositioning for a potential continuation of this trend.

Following March’s market downturn, valuations in tech are also looking much more attractive, sitting at around the 50th percentile from a price to earnings perspective versus the last decade – providing an attractive entry point and helping to fuel increasing investor interest in the sector.⁶

Gaining exposure through ETFs

For Australian investors, ETFs offer a convenient and cost-effective way to access US technology opportunities. iShares provides a range of ASX-listed options, including:

• iShares Nasdaq Top 30 ETF (ITEK): Investors can dial up their exposure to US large cap tech using ITEK, which has a 70% weighting to megacap stocks.⁷
• iShares S&P Global 100 ETF (IOO): For investors looking for a significant weighting to US technology with global diversification, IOO offers a 45% weighting to IT, tracking an index that selects globally active companies with a minimum market cap of US$5 billion⁸
• iShares U.S. Factor Rotation Active ETF (IACT): With a 40% weighting to technology, IACT provides an active overlay to US market exposure, using data signals to rotate across investment styles that are best positioned to benefit from market conditions, including momentum, value, quality and growth⁹

These ETFs allow investors to gain diversified exposure to the sector while benefiting from liquidity and transparency.

A selective opportunity

While the US technology sector may not deliver the uniform gains seen in previous cycles, the combination of strong earnings, structural growth drivers and renewed investor flows suggests a constructive outlook.

In an environment where leadership is becoming more concentrated, a diversified ETF approach may help investors capture the sector’s upside while managing risks – positioning portfolios to benefit from what could be another defining year for US technology.

Opinions are subject to change, and they are not a guarantee of future results. This information should not be relied upon as research, investment advice or a recommendation. Diversification and asset allocation may not fully protect you from market risk.

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