2026-01-06 02:23Summary of Key Points from J.P. Morgan's Predictions for 2026 Company: Apple 1. Product Cycle and Cost Management: The key driver for Apple's upside in 2026 will be the product cycle and cost management rather than AI advancements. The iPhone 17 and 18 cycles will focus on traditional features like form factor and camera, with AI playing a lesser role in differentiation [1][14] 2. AI Partnerships: Apple is expected to partner with leading AI model companies to enhance Siri, but consumer interest in AI differentiation remains low, focusing instead on basic AI features [1][2] 3. Executive Changes: Significant changes in top personnel at Apple are anticipated as the company positions itself for AI leadership. The average age of the leadership team is around 59 years, and strong hiring momentum in AI is expected to continue [2] Industry: Electronic Manufacturing Services (EMS) and Contract Manufacturers 1. Modest Year Ahead: The EMS and contract manufacturers are expected to have a modest year in 2026 compared to 2025, with share price upside tied to earnings revisions rather than multiple expansions [3] 2. Earnings Revisions: The share price upside for EMS/CMs in 2026 will be limited compared to the previous year, as the group has already seen a re-rating in earnings multiples [3] AI and Networking 1. AI Networking Growth: AI Networking is expected to grow faster than AI Compute due to customer focus on optimizing compute spend and the scaling of AI clusters, leading to increased networking interconnects [7] 2. Optics Market: The optics market is anticipated to benefit significantly from the AI investment cycle, with a focus on AI Networking and the share of optics within networking driving outperformance [8] 3. Investment Strategy Shift: Investor interest is expected to shift from suppliers with high leverage to merchant GPUs to those with custom ASICs, driven by a more favorable outlook for custom ASICs in AI compute [6] Enterprise Spending and Cost Dynamics 1. Challenged Enterprise Spending: Traditional IT spending is expected to be crowded out by cloud AI spending, leading to muted refresh and upgrade cycles for traditional IT [9] 2. Cost Inflation Management: Suppliers are expected to manage cost inflation effectively, with limited risks to pass-through costs to end customers due to the urgent need for AI infrastructure [10] 3. Supply Constraints: Supply constraints are anticipated to impact growth linearity and share price upsides in 2026, with revenue drivers for AI suppliers expected to accelerate despite non-linear growth paths [11] Market Outlook 1. Earnings Revisions and Multiple Expansion: The first half of 2026 is expected to see share price upside driven by earnings revisions, while the second half may offer opportunities for multiple expansion as clarity on 2027 capex plans improves [12] 2. Investor Sentiment: The sentiment towards AI-levered suppliers was weaker in the first half of 2025, but improved in the second half, indicating a potential trend for 2026 [18] Additional Insights 1. Tariff Impact: Tariff-related headwinds are expected to be less impactful than previously feared, with limited implementation of announced tariffs [28] 2. Automotive Sector Trends: The automotive sector, particularly in relation to electric vehicles, remains an area of disillusionment, with consumer preferences shifting away from EVs [29]