Rudi’s View: AI, Small Caps & Resources In 2026

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            [74] => ((AUC))
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            [91] => ((HZR))
            [92] => ((MMI))
            [93] => ((PEN))
            [94] => ((SLX))
            [95] => ((VGL))
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            [29] => MGR
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            [32] => RHC
            [33] => EOL
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            [35] => SHA
            [36] => ABB
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            [38] => BRE
            [39] => CCL
            [40] => QOR
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            [44] => ZIP
            [45] => MIR
            [46] => MFF
            [47] => WHI
            [48] => BGA
            [49] => RFF
            [50] => ELD
            [51] => 360
            [52] => WTC
            [53] => CAR
            [54] => CCL
            [55] => GDG
            [56] => RPL
            [57] => APZ
            [58] => CIP
            [59] => RGN
            [60] => UNI
            [61] => HVN
            [62] => ABY
            [63] => IDX
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            [65] => PME
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            [71] => EVN
            [72] => MI6
            [73] => BM1
            [74] => AUC
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            [76] => NIC
            [77] => A4N
            [78] => IPX
            [79] => TTT
            [80] => ELS
            [81] => EOS
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            [83] => INR
            [84] => PDN
            [85] => VMM
            [86] => WA1
            [87] => AL3
            [88] => AR1
            [89] => BMN
            [90] => CWP
            [91] => HZR
            [92] => MMI
            [93] => PEN
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This story features ARISTOCRAT LEISURE LIMITED, and other companies.
For more info SHARE ANALYSIS: ALL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

The latest updates on Conviction Calls, Best Buys, strategy focus, and preferred stock picks for 2026.

In today's update:

• "Would the real AI bubble please stand up?”
• From the Investment Strategy Desk at Bell Potter
• Australia Remains Underweight at T.Rowe Price
• Wilsons' Conviction Calls
• Macquarie's Small-Cap Consumer Picks
• Macquarie's Portfolio Changes
• Ord Minnett's Conviction Calls
• Bell Potter's Stock Picks For 2026
• Shaw and Partners' Small Cap Champions

By Rudi Filapek-Vandyck, Editor

AI. Bubble? Fraud? Or Mega accountancy trickery?

Maybe it’s simply the fourth industrial revolution and this is how society changes in real time.

The public debate continues to rage on and it’s becoming an emotionally-driven affair in which voices on either side dig in and defend their established opinions (and conclusions) with all might available.

The latest contribution by the Deutsche Bank Research Institute is an honest attempt to assess the phenomenon from a neutral platform with attention for both pros and cons.

Let’s go straight to the conclusion drawn: No, it’s not a bubble, though it may well develop into one, and there are most definitely threats and risks as AI develops further.

This, of course, has been the view here at FNArena all along. It’s great to see this debate can still be assessed in a well-researched, non-emotional, not pre-determined or overly biased manner.

Said document consists of only 23 pages, including cover and disclaimer, and mostly works through the questions and answers with well-chosen graphics we cannot reproduce here (copyright).

Hence, a summary in prose:

“Would the real AI bubble please stand up?”

The two authors of the study argue the debate around an “AI bubble” is badly framed, suggesting investors are dealing with three overlapping booms –-valuations, investment and technology-– rather than a single monolithic bubble.

While headline valuations appear stretched, the the current cycle differs materially from the late-1990s dot-com surge, with Big Tech’s cash-rich balance sheets and immediate revenue lift supporting the initial phases of the AI build-out.

Red flags do exist. US equity valuations, measured by the Shiller CAPE ratio, have pushed above 40, close to the dot-com peak of 44. Forecast AI-related capex could exceed US$4trn by 2030 –-more than ten times the inflation-adjusted cost of the Apollo program-– without any guarantee the investment earns an adequate return.

And while generative AI continues to impress, concerns are growing about scaling limits, including physical constraints around data movement between chips.

Yet, several green lights temper bubble talk. Tech valuations remain at the low end of their post-2022 trend channel, and the sector’s premium over the broader market reflects genuine earnings outperformance rather than speculative multiple expansion.

The most extreme valuations sit in private markets, not among listed megacaps, where balance sheets remain robust. Capex growth is consistent with a decade-long trend and still largely funded by free cash flow, with hyperscalers such as Google generating tens of billions in quarterly operating cash.

On the technology front, models such as Gemini 3 demonstrate continued capability gains, while costs per token have collapsed by a factor of 1,000 over recent years, widening viable commercial use-cases.

The authors caution this matters because AI-linked spending has been propping up US GDP growth, with underlying economic activity otherwise close to stalling. A reversal would therefore carry macro risk.

They outline five potential shocks: circular financing structures that obscure valuations; rising leverage even among hyperscalers; diminishing returns from model scaling; societal or political backlash; and hard-capacity constraints, notably electricity supply, where global demand is projected to quadruple by 2030.

Bottom line: the Deutsche Bank Research Institute sees pockets of excess but rejects the idea of a single AI bubble ready to burst. Instead, the current cycle looks early-stage, cash-funded and still delivering tangible technological and economic gains –- but one where investors must remain alert to structural vulnerabilities.

One of the stand-out conclusions from the report: “US would be close to recession this year if it weren’t for tech-related spending, as other spending has flatlined post-Covid“.

From the Investment Strategy Desk at Bell Potter:

Five reasons to remain constructive on risk assets in 2026:

(1) Fiscal Tailwind (expansionary US government spending and tax policy),
(2) Bank Deregulation (unlocking US lending capacity),
(3) Tariff De-escalation (subsiding trade tensions),
(4) Monetary Tailwind (expected dovish tilt and easing cycle from the US Fed), and
(5) AI Capex Backstop (private sector capital expenditure acting as an anchor for economic activity).

One of the more interesting snippets from this week’s report:

“We are moving into a phase where the benefits of AI adoption begin to show up in the margins and productivity of the broader corporate sector.

“However, our expectations for broad productivity growth in 2026 remain low, but any promising signals emerging from companies in their reporting periods could trigger a strong market reaction.”

Bell Potter’s five key calls for 2026:

• Emerging Markets (EM) to be a primary beneficiary of the broadening returns theme in 2026
• Resource equities are set to benefit from a combination of a rise in structural demand coupled with supply under investment (rotation to continue)
• Broader thematics to favour the Value factor
• Expect a “higher for longer” pause from the RBA in the near term
• A stronger AUD; investors should hedge their global equity exposure

Australia Remains Underweight At T.Rowe Price

T. Rowe Price still cannot get excited about investing in Australian equities:

“We remain underweight as the market is not cheap while forecast earnings growth is weak relative to the rest of the world.

“This seems unlikely to change in the short term, as Q2 results season forward guidance was weak.”

Wilsons’ Conviction Calls

Strategists at Wilsons highlighted yet again in the face of markets preparing for RBA rate hikes (or at least one hike next year) domestic cyclicals on the ASX are likely to continue underperforming.

Think discretionary retailers and media and consumer services, but also building materials and capital goods.

Despite the prospect of a stronger Aussie dollar in 2026, Wilsons’ preference remains with quality offshore earners.

The latest strategy update sees positive views and outlook being re-iterated for Aristocrat Leisure ((ALL)) and Car Group ((CAR)), with both now considered trading at “compelling valuations”.

Macquarie’s Small-Cap Consumer Picks

Consumer discretionary sector analysts at Macquarie highlighted their favourite picks this week, while arguing investors should look for quality brands in a sector heavily under pressure.

Macquarie’s order of preference (most preferred first):

• Breville Group ((BRG))
• Nick Scali ((NCK))
• Superloop ((SLC))
• Universal Store Holdings ((UNI))
• Lovisa Holdings ((LOV))
• Temple & Webster ((TPW))
• Baby Bunting ((BBN))
• Premier Investments ((PMV))
• Aussie Broadband ((ABB))
• Super Retail ((SUL))

Macquarie’s Portfolio Changes

Strategists at Macquarie are toying with the idea the RBA won’t be the only central bank hiking rates in 2026.

On this premise, multiple re-adjustments have been made to the Model Portfolio:

Changes include a shift towards late cycle exposures, rather than early cycle performers, through a larger allocation to Resources.

The Portfolio has added Capstone Copper ((CSC)) and increased exposure to BHP Group ((BHP)) and Paladin Energy ((PDN).

The Portfolio has also added Orica ((ORI)) and Aurizon Holdings ((AZJ)) for more Resource-related exposure.

The Portfolio’s underweight allocation to Financials has been reduced through a switch to QBE Insurance ((QBE)) from Insurance Australia Group ((IAG)), more exposure to Challenger ((CGF)), ANZ Bank ((ANZ)), and National Australia Bank ((NAB)).

The allocation for Growth is now smaller as Xero ((XRO)) has been replaced by WiseTech Global ((WTC)), Megaport ((MP1)) is no longer included, and part of the exposure to Block ((XYZ)) was sold.

The weighting for consumer stocks and bond proxies has also reduced. Lovisa Holdings ((LOV)) is no longer in the Portfolio and Seek ((SEK)) accounts for less. Shares in APA Group ((APA)) have been sold and exposure was culled to both Telstra ((TLS)) and Mirvac Group ((MGR)).

CSL’s ((CSL)) Portfolio weighting is now smaller too.

In case anyone wonders: ResMed ((RMD)) and Ramsay Health Care ((RHC)) are the other healthcare sector representatives.

Ord Minnett’s Conviction Calls

Analysts’ Conviction List at Ord Minnett has been enlarged through the inclusion of:

• Energy One ((EOL))
• Lindsay Australia ((LAU))
• Shape Australia Corp ((SHA))

Remain selected:

• Aussie Broadband ((ABB))
• Beacon Lighting ((BLX))
• Brazilian Rare Earths ((BRE))
• Cuscal ((CCL))
• Qoria ((QOR))
• Ramelius Resources ((RMS))
• Regis Healthcare ((REG))
• SiteMinder ((SDR))
• Zip Co ((ZIP))

Bell Potter’s Stock Picks For 2026

Analysts at Bell Potter have chosen the following:

Listed Investment Companies

• Mirrabooka Investments ((MIR))
• MFF Capital Investments ((MFF))
• Whitefield Income ((WHI))

Agricultural & FMCG

• Bega Cheese ((BGA))
• Rural Funds Group ((RFF))
• Elders ((ELD))

Technology

• Life360 ((360))
• WiseTech Global ((WTC))
• Car Group ((CAR))

Diversified Financials

• Cuscal ((CCL))
• Generation Development Group ((GDG))
• Regal Partners ((RPL))

Real Estate

• Aspen Group ((APZ))
• Centuria Industrial REIT ((CIP))
• Region Group ((RGN))

Retail

• Universal Store ((UNI))
• Harvey Norman ((HVN))
• Adore Beauty ((ABY))

Healthcare

• Integral Diagnostics ((IDX))
• Telix Pharmaceuticals ((TLX))
• Pro Medicus ((PME))

Utilities & Renewable Energy

• Frontier Energy ((FHE))
• LGI ((LGI))

Mining & Industrial Services

• Develop Global ((DVP))
• IPD Group ((IPG))
• Duratec ((DUR))

Gold

• Evolution Mining ((EVN))
• Minerals 260 ((MI6))
• Ballard Mining ((BM1))
• Ausgold ((AUC))

Base Metals

• Aeris Resources ((AIS))
• Nickel Industries ((NIC))

Strategic Minerals & Processing Technologies

• Alpha HPA ((A4N))
• IperionX ((IPX))
• Titomic ((TTT))

Defence

• Elsight ((ELS))
• Electro Optic Systems ((EOS))

Lithium

• Liontown ((LTR))
• Ioneer ((INR))

Energy

• Paladin Energy ((PDN))

Rare Earths & Niobium

• Viridis Mining & Minerals ((VMM))
• WA1 Resources ((WA1))

Shaw and Partners’ Small Cap Champions

Shaw and Partners highlights small cap companies have outperformed their larger peers by some 14% in 2025.

As small caps are still cheaper valued and offering “superior growth” prospects, this relative outperformance is expected to continue in 2026.

This broker’s Top Ten Small Cap Ideas for 2026:

• AMLD3 Ltd ((AL3)) – target $0.40
• Austral Resources Australia ((AR1)) – target $0.20
• Bannerman Energy ((BMN)) – target $4.70
• Cedar Woods Properties ((CWP)) – $9.35
• Hazer Group ((HZR)) – target $0.70
• Metro Mining ((MMI)) – target $0.15
• Peninsula Energy ((PEN)) – target $1.33
• Silex Systems ((SLX)) – target $11.20
• Vista Group International ((VGL)) – target $4.10

Add it all up and we have nine names. Shaw and Partners is currently restricted on Key Pick number ten and expects to reveal its identity in January.

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi’s View stories. Go to My Alerts (top bar of the website) and tick the box in front of ‘Rudi’s View’. You will receive an email alert every time a new Rudi’s View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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