2026 AI Stock Volatility Warning: Baird Strategist’s Insights and Market Context

This analysis is based on a December 28, 2025 YouTube video [4] featuring Baird Tech Strategist Ted Mortonson, who warned of “tremendous volatility” ahead for AI stocks in 2026—a sector that has been a primary driver of global market gains over the past two years.

As the event was published on a non-trading day (Sunday), immediate U.S. market reaction was unobserved at the time of analysis. Context from the prior trading day (December 26, 2025) shows mixed performance among major AI stocks: NVIDIA (NVDA) +0.32%, Microsoft (MSFT) +0.21%, Alphabet (GOOGL) -0.31%, and Meta Platforms (META) -0.71% [0]. Sector performance was also split, with Technology down -0.14718% and Communication Services (including GOOGL and META) up +0.69774% [0].

Mortonson’s warning aligns with a Forbes report [1] published the day before, which predicted “AI churn” in 2026: pilot AI revenues failing to convert to long-term contracts, customers reassessing real ROI, and rising competition in the sector. Additionally, investors in Applied Materials (AMAT)—a key AI chip equipment supplier—were already questioning whether AI-driven chip spending would sustain to justify the company’s current valuations [3].

Contrarily, a December 27, 2025 CNBC report [2] highlighted Morgan Stanley’s bullish outlook, naming NVDA a top 2026 pick due to its robust exposure to cloud capex spending.

1. Convergence of Cautious Signals
   : Mortonson’s volatility warning adds to pre-existing undercurrents of concern in the AI sector, including AMAT valuation questions and Forbes’ “AI churn” prediction, indicating growing skepticism among some market observers.
2. Analyst Divergence Highlights Uncertainty
   : The split between bearish (volatility warning) and bullish (NVDA top pick) outlooks underscores the high degree of uncertainty surrounding AI stocks’ 2026 performance, driven by conflicting views on adoption sustainability and valuation.
3. Timing Impact on Market Reaction
   : Since the warning was released on a non-trading day, the first observable market reaction will occur when U.S. markets open on December 29, 2025, potentially creating immediate sentiment shifts for AI stocks.

1. Valuation Vulnerability
   : Many AI stocks carry high P/E ratios, making them sensitive to volatility if growth expectations are not met [3].
2. Adoption and ROI Risks
   : Customers may scale back or reassess AI investments as they evaluate real returns, leading to slower revenue growth [1].
3. Competition and Churn
   : Emerging AI players could erode market share, while AI service providers may face increased customer churn as contracts are reviewed [1].
4. Geopolitical Constraints
   : China export controls could limit AI chip sales for leaders like NVDA [0].

1. Cloud Capex Exposure
   : NVDA’s strong position in cloud capex spending presents growth potential, as highlighted by Morgan Stanley’s top pick designation [2].
2. Long-Term Technological Tailwind
   : Despite volatility risks, AI remains a foundational technological trend, with established players poised to benefit from continued innovation and industry adoption.

• Baird Tech Strategist Ted Mortonson warned of significant 2026 volatility for AI stocks, which have driven recent global market gains [4].
• Major AI stocks showed mixed performance on the last trading day (December 26, 2025) before the event, with sector performance also split [0].
• The warning aligns with Forbes’ “AI churn” prediction but contrasts with Morgan Stanley’s bullish view on NVDA [1, 2].
• Key risks include valuation concerns, adoption slowdowns, and geopolitical constraints, while opportunities center on cloud capex exposure and long-term technological trends.

Decision-makers should monitor the market reaction on December 29, 2025, seek additional details on Mortonson’s specific concerns, and evaluate the AI exposure and valuation of their portfolio holdings.