LSEG, Rolls-Royce, AstraZeneca and Rightmove spotlighted as investment bank eyes potential winners for 2026

JPMorgan’s London analysts present a cautiously constructive 2026 outlook, arguing that AI is moving from hype to a practical earnings driver and that easing financial conditions should revive M&A activity. The bank refreshes high-conviction Overweight/Underweight calls, flagging LSEG, Nokia and ASML as AI/infra beneficiaries, Rolls‑Royce and Barclays for improving fundamentals and capital returns, and AstraZeneca for another year of double-digit core earnings growth, while warning on BASF, Admiral and Rightmove; Nokia divisional targets imply mid‑teens earnings growth if met.

Analysis

Market structure: AI shifting from hype to embedded data products favors data-owners (LSEG), AI-infrastructure (ASML, NOK) and software-enabled workflows (AZN’s R&D productivity). Expect revenue mix shifts: recurring data/license sales +20-40% incremental margin versus one-off services, squeezing pricing power for pure-play legacy distributors (Rightmove) and cyclical chemicals. Improving balance sheets and easing financing should lift M&A-sensitive cash generators (Rolls-Royce) and renew capital spending in semis; watch memory capex as the key demand lever over 2026–2027.

Risk assessment: Key tail risks are regulatory/data-privacy action (10–15% probability within 12 months) that could cap LSEG data monetization, and a macro shock (20–30% probability) that re-freezes capex and deals. Immediate risk: headline volatility around Q1 2026 results and any antitrust probe; short-term (weeks–months) sensitivity to rates and spreads; long-term (1–3 years) dependent on actual AI ROI conversion and sustained pricing power. Hidden dependency: vendors (Nokia/ASML) rely on semiconductor cycle timing and Chinese demand; second-order is FX and supply-chain bottlenecks for optical components.

Trade implications: Direct plays — establish modest long exposure to LSEG and ASML into 2026 earnings with 6–12 month horizons, and selective long RR. versus short Rightmove and Admiral for margin/structural weakness. Use pair trades to neutralize beta: long LSEG (2% NAV) / short RMV (1% NAV) to capture data vs housing divergence; buy 9–15 month call spreads on ASML (20–30% OTM) to limit capital while capturing a fab-capex upcycle. Rotate overweight into Financials and Industrials (add 3–5% net) and underweight Chemicals/Staples by equal amounts.

Contrarian angles: Consensus underprices LSEG’s ability to monetize AI-interfaced workflows — if >15% y/y data revenue growth is reported in H1 2026 the stock re-rate could be ≥25%. Conversely, ASML upside is concentrated and priced for perfection; if memory capex lags consensus by 15% there’s meaningful downside. Historical parallel: 2016–18 capex rebound shows early winners (equipment + software) outperformed cyclicals; unintended consequence: rapid AI adoption could concentrate returns in few platform owners, leaving broad tech indices underperforming.

Key Decisions for Investors

• Establish a 2–3% NAV long position in LSEG (LSE:LSEG) starting Jan–Mar 2026, scale to full size on signs of >10–15% y/y growth in data/analytics subscription revenue; set a 12-month target +25% and stop-loss -12% if sequential data rev growth turns negative for two quarters.
• Initiate a 1.5–2% NAV long position in Rolls-Royce (LSE:RR.) to capture margin self-help and cash generation; reduce or take profits if free cash flow conversion falls below 5% of sales or if orderbook declines >10% y/y in any quarter.
• Enter a relative-value pair: long LSEG (2% NAV) / short Rightmove (LSE:RMV) (1% NAV) to exploit AI/data monetization vs housing-market weakness; target a 15–20% spread convergence within 6–12 months, unwind on tighter-than-expected UK housing indicators (mortgage approvals +/− >10% month-on-month).
• Use options to express asymmetric risk: buy 9–15 month call spreads on ASML (ASML) 20–30% OTM to capture fab capex recovery with defined risk; alternatively buy Nokia (NOK) 12-month ATM calls if management confirms mid-teens growth for optical/IP divisions in Q1 2026 guidance.
• Reduce Chemicals and Consumer Staples exposure by 2–4% NAV (favor Croda exception) and rotate into Financials/Industrials by same amount; re-evaluate after Q1 2026 earnings and a potential wave of M&A announcements—pull forward exits if macro tightening pushes yields >300bp above current levels.