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"Mondrian is structurally bullish on AI but cyclically cautious on valuations. Market concentration is at all-time highs, with AI infrastructure spending now dependent on external financing rather than free cash flow, adding fragility."
Mondrian's Q2 2026 outlook highlights the narrowing of global market strength around a small number of AI-related winners, with market concentration reaching all-time highs. While the firm remains structurally bullish on long-term AI adoption, it expresses cyclical caution on current equity market valuations. AI infrastructure spending has grown large enough to drive macroeconomic growth, particularly in the US, but the scale of investment now depends on debt and equity markets rather than free cash flow alone, adding fragility to the cycle. The manager warns that semiconductor companies are priced for extraordinary growth rates to persist indefinitely, yet supply shortages are not permanent and capacity will eventually catch up. Alphabet's recent $80 billion equity raise exemplifies both the potential for further AI buildout and the increasing dependence on market appetite for funding. The extreme concentration in US, Taiwan, Korea, and EM indices contrasts with the more balanced MSCI EAFE opportunity set. Mondrian sees attractive opportunities in high-ROIC businesses outside the AI winners that have lagged, applying its DDM methodology to identify mispriced securities with strong alpha potential and defensive characteristics.
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