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Wall Street’s rally of U.S. stocks in 2023 and 2024 continued in 2025, albeit at a slow pace. In 2026, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are up 13%, 16.4% and 20.4%, respectively. At this stage, the most important question is whether this more-than-three-year-old rally will continue in 2026. A majority of financial analysts and economists are hopeful of a 2026 rally too.
The AI saga, supported by the massive growth of cloud computing and data centers, is yet to fully unfold. This space remains rock solid, supported by an extremely bullish demand scenario. The demand for data center capacity has surged to manage and store the vast amount of cloud computing-based data.
Goldman Sachs and Bank of America projected that AI infrastructure capex spending will cross $1 trillion in 2028. JP Moran and Citigroup forecast this figure to total $5 trillion cumulative in 2030. Research firm McKinsey & Co. estimated that global AI-powered data center infrastructure capex will reach around $7 trillion by 2030.
Four of the “magnificent 7” stocks have decided to invest a massive $380 billion in 2025 as capital expenditure for AI-infrastructure development. This marks a significant 54% year-over-year increase in capital spending on the AI ecosystem. Moreover, these companies have also said that AI capex is likely to increase to $440 billion in 2026.
The Bureau of Economic Analysis reported that the U.S. GDP growth rate climbed 4.3% in third-quarter 2025 after an impressive 3.8% growth rate in the second quarter. Consumer spending — the largest component of the GDP — surged 3.5% year over year.
Wall Street analysts are optimistic about fourth-quarter 2025 earnings results. Year over year, total earnings of the S&P 500 are likely to up 7.6% in fourth-quarter 2025 on 7.7% higher revenues. For 2026, total earnings of the S&P 500 Index are expected to up 12.3% year-over-year on 6.9% higher revenues.
The Fed lowered the benchmark lending rate by 75 basis points in 2025 after lowering it by 1% in 2024. The current Fed fund rate is in the range of 3.50-3.75%. Market participants are hopeful for two more rate cuts of 25 basis points each in 2026. The CME FedWatch interest rate derivative tool currently shows the first rate cut as likely to happen in April with a probability of nearly 60%.
We recommend, three major laggards (annual return more than -20%) of 2025 to gain in 2026. These stocks have strong upside potential for 2026. These are: Marvell Technology Inc. MRVL, PG&E Corp. PCG and Snap Inc. SNAP. Each of our picks currently carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our three picks in the past three months.
Zacks Rank #1 Marvell Technology has been benefiting from AI-powered data center growth driven by strong traction in custom XPU silicon, electro-optic interconnect products and next-generation switch offerings.
MRVL is a promising player in the solid-state drive controllers market. The storage market is seeing a steady increase in demand, given the fast-growing data volume, especially the exponential growth in unstructured data. Completion of inventory digestions is likely to aid growth for MRVL across the enterprise networking and carrier infrastructure end markets.
Custom AI silicon and electro-optics products have positioned MRVL as a critical player in high-performance computing. The company’s partnerships with leading hyperscalers ensure sustained growth, with management confident that revenues from its custom XPU (accelerated computing) solutions will continue expanding in fiscal 2027 and beyond.
MRVL announced the acquisition (expected to close in the first quarter of fiscal 2027) of Celestial AI, which specializes in the Photonic Fabric technology platform. This platform is purpose-built for scale-up optical interconnect.
Marvell Technology highlighted that Celestial AI is “deeply engaged” with several hyperscalers and ecosystem partners. Celestial AI has already won a major contract with one of the biggest hyperscalers. This hyperscaler intends to use the photonic fabric chiplets in its next-generation scale-up architecture.
Hyperscalers are also central to the company’s other product lines. MRVL is pushing boundaries with 400G per lane PAM technology, enabling 3.2T optical interconnects and future-proofing hyperscaler infrastructure.
The acquisition of Celestial AI will put Marvell on a firm footing in the next-generation energy-efficient AI infrastructure space to compete intensely with bigwigs like NVIDIA and Broadcom.
Strong growth in MRVL’s data center, enterprise networking and carrier infrastructure revenues coupled with the proposed acquisition of Celestial AI could be a game-changer for the company.
MRVL has an expected revenue and earnings growth rate of 22.3% and 26.1%, respectively, for next year (ending January 2027). The Zacks Consensus Estimate for next year’s earnings has improved 6.9% over the last 30 days. The stock has a long-term (3-5 years) EPS growth rate of 46.9%, significantly above the S&P 500 Index’s 15.9% growth rate.
Zacks Rank #2 PG&E is engaged in the sale and delivery of electricity and natural gas to customers in northern and central California. PCG generates electricity using nuclear, hydroelectric, fossil fuel-fired, fuel cell, and photovoltaic sources.
The energy-hungry AI space has made nuclear energy one of the hottest industries on Wall Street over the past year. Nuclear energy is increasingly recognized as a key solution to meeting rising global electricity demand and shifting toward cleaner energy sources.
To strengthen the nation’s nuclear sector, President Donald Trump has issued four executive orders. These measures target an increase in U.S. nuclear capacity from about 100 gigawatts (GW) in 2024 to 400 GW by 2050.
PCG currently operates California’s only operating nuclear power plant, Diablo Canyon. Notably, in November 2024, PCG announced that it had begun deploying Atomic Canyon’s AI-powered Neutron Enterprise solution at its Diablo Canyon Power Plant—the first on-site generative AI deployment at a U.S. nuclear facility.
Built on NVIDIA’s full-stack AI platform, this technology streamlines document retrieval from hours to seconds, enhancing operational efficiency, compliance, and safety. As energy demand in California rises, this upgrade will support Diablo Canyon’s role as a key clean energy provider.
With AI integration boosting productivity and regulatory compliance, this initiative will strengthen PCG’s position in the nuclear sector’s digital transformation and expansion, meeting rising energy needs with smarter, faster and safer operations.
PG&E has an expected revenue and earnings growth rate of 6.4% and 9.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% in the last 30 days. The stock has a long-term (3-5 years) EPS growth rate of 15.9%, in line with the S&P 500 Index’s growth rate.
Zacks Rank #2 Snap’s strategic integration of AI across its platform fundamentally transforms how teenagers discover information and interact with content, creating significant monetization opportunities beyond traditional advertising.
The landmark Perplexity partnership demonstrates SNAP’s emerging role as a primary distribution channel for conversational AI services, positioning the company to capture value as information consumption shifts toward AI-mediated interfaces.
Perplexity will pay Snap $400 million over one year to integrate SNAP’s AI-powered answer engine into Snapchat's chat interface starting in early 2026, with revenue contributions expected to begin that year. The partnership targets Snap's 943 million monthly active users.
The explosive growth trajectory of Snapchat+ validates the platform's ability to monetize teenage users through exclusive AI-enhanced features and premium experiences, establishing a recurring revenue foundation that lowers advertising dependency.
Snap has an expected revenue and earnings growth rate of 13.4% and 52.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 32.4% over the last 60 days.
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This article originally published on Zacks Investment Research (zacks.com).
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