Artificial intelligence (AI), defence and energy security investments will transform the world economy in the next five years, potentially creating one of the largest investment cycles in modern history, according to global investment management firm PIMCO.
PIMCO is putting forward a future of geopolitical fragmentation, fiscal pressure and record spending on strategic sectors in its latest report, Secular Outlook 2026: Rupture and Resilience. One of the report’s most striking predictions is that investments in AI infrastructure, defence modernisation, and energy security initiatives could eventually contribute as much as $14 trillion to global capital spending over the next five years. The spending surge will drive economic activity from technology and manufacturing to construction, utilities and energy production.
Artificial intelligence has crossed a critical threshold and is not just a futuristic concept anymore, PIMCO says. It has developed into a major macroeconomic driver that has helped shape the growth, productivity and capital allocation decisions worldwide. The exponential growth of AI is driving massive investments in data centres, advanced computing systems, semiconductor manufacturing, cloud infrastructure, and electricity generation.
AI-based infrastructure development is creating demand across the global economy, the report says. Businesses and governments are now moving faster to adopt AI technologies, so spending on supporting infrastructure is expected to keep rising. And the productivity gains AI could produce could make businesses more efficient, potentially lower costs, and put downward pressure on inflation.
But PIMCO says the benefits of the AI revolution can’t be shared equally. The technology will make for significant differences between countries, industries and individual companies, the firm says. Successful applications of AI to the business in firms can have a big productivity gain and growth potential, but others lack the competitive edge.
In addition to AI, the report cites rising defence budgets and energy security investments as key drivers of global capital expenditure. Geopolitical tensions, regional conflicts and issues related to energy independence are also stressing governments’ need to invest heavily in military capabilities, renewable energy infrastructure, power grids, and supply chains.
Despite the economic benefits, the report also points to multiple risks that could complicate the global outlook. Trade fragmentation, geopolitical conflicts, supply chain disruption, and fiscal constraints could create inflationary pressures and increase market volatility. These factors may lead to a wider range of economic outcomes than investors have seen in recent years.
PIMCO cautions investors to remain resilient and not take on too much risk. For the firm, a diversified portfolio with good fixed income, good credit, global diversification and more concentrated exposure to real assets is the best protection from uncertainty on a long-term basis and is likely to provide the best deal in the long-term.
The report concludes that the world is entering a new economic era characterised by technological change, geopolitical change and huge capital investment. There are still challenges left, and yet the combination of AI innovation, defence modernisation, and energy security spending will be the engine of global economic growth and the way that industries and investment markets will look like for years to come.
