In an interview with CNBC, McCartney said investors need evidence that AI investments can generate enough revenue to justify infrastructure spending.
- McCartney said a limited tightening cycle could support stocks, citing historical periods when the S&P 500 outperformed its average returns.
- She said AI productivity gains need to spread beyond large cloud providers to support companies across the S&P 500.
- McCartney flagged Iran and oil prices as the main risks, citing their potential to raise costs and pressure corporate margins.
Alli McCartney, a managing director in wealth management at UBS, said on Monday that she believes two forces will push stocks higher after next week’s midterm elections and into 2027, while one will hold them back.
“Those two narratives are going to be AI revenue, not AI spend, not the cost of credit to build AI, not the circularity, but AI revenue and productivity growth,” McCartney said in an interview with CNBC. “The second is going to be the path of the Fed.”
The main overhang, she added, is “Iran and oil,” with higher energy prices threatening to raise costs for companies and complicate the inflation outlook.
U.S. equities rose in midday trade on Monday, with tech leading gains. The SPDR S&P 500 ETF (SPY) was up 0.84%, the SPDR Dow Jones Industrial Average ETF (DIA) rose 0.32%, while the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) jumped 1.5%. However, retail sentiment around QQQ on Stocktwits remained in ‘extremely bearish’ territory over the past day.
Lumentum Holdings (LITE), Synopsys (SNPS), Tesla (TSLA) and Arm Holdings (ARM) were the top gainers in the Nasdaq-100. LITE stock rose over 8.5%, while SNPS stock and TSLA shares gained nearly 6%. ARM stock was up 5.4%.
AI Revenue, Not Spending, Will Test The Rally
McCartney said investors are likely to focus increasingly on whether AI investments are translating into revenue and profits, rather than simply tracking how much companies spend on data centers and computing infrastructure.
“The AI revenue question is still kind of out there,” she said. “Will it be enough, and how fast does it come to justify all the spending?”
The concerns have weighed on data center infrastructure companies, including CoreWeave (CRWV) and Nebius Group (NBIS), whose shares have fallen more than 30% over the past month.
Elon Musk added to the concerns in a post on X on Sunday, saying debt markets had nearly shut off for AI companies that were not generating “substantial revenue” outside data centers. Analysts at Jefferies said his comments appeared to trigger another bout of “skittish trading.”
Fed Policy Could Support Stocks
McCartney said the Fed’s rate path could become a tailwind if the tightening cycle remains limited. According to her, markets have already priced in further rate cuts and relatively hawkish signals from the central bank could prompt investors to reassess those expectations.
Looking at past cycles in which the 10-year Treasury yield rose by less than 100 basis points from its peak, McCartney said the S&P 500 outperformed its historical average over the following six- and 12-month periods. She cited an average return of about 15% over the 12-month period.
“If you have a supportive macro backdrop, you have the micro, the fundamentals of earnings, and you continue to have AI tailwinds, then you’re going to see that,” she said.
Iran And Oil Pose Risks
McCartney flagged the conflict with Iran and its potential effect on energy prices as the main overhang for markets.
“I think the big overhang we have is Iran and oil,” she said. Higher oil prices can raise costs for businesses and consumers, squeeze corporate margins and complicate the Fed’s efforts to control inflation. McCartney also pointed to “a drag on import costs in oil right now.”
For stocks to advance into 2027, McCartney said AI must deliver measurable improvements in revenue and productivity, while the Fed’s rate path remains manageable and oil prices do not undermine the outlook.
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