JH Explorer in Miami: Recovery signs, data centers, and AI risk in industrials

Janus Henderson’s Research Team recently attended Barclays’ Industrials Select Conference and Citi’s 2026 Global Industrial Tech & Mobility Conference. After meeting with company management teams, listening to sector commentary, and reading signals from across the supply chain, we came away with three clear themes worth sharing. We also gained the overall impression that the industrial economy is at an inflection point, and knowing where to look matters as much as knowing what to look for.

The short-cycle recovery appears real, but not yet broad

One of the biggest debates at the conferences was one investors have been having for several quarters: Is the industrial economy about to turn, and if so, will it stick?

The honest answer is that it depends on who you ask – and that itself is telling. Companies close to the short-cycle economy – those serving customers with quick order-to-delivery cycles, including railroads and industrial automation players – are not yet ready to declare a recovery. While one executive contended the green shoots are “real”, another was very explicitly “not seeing it yet.” To us, that kind of split signals a market still searching for direction.

Our own read leans slightly more constructive: We view the setup as a growing fire. And after a multi-year slowdown in broad-based industrial spending, there is significant dry tinder. Long-cycle segments – e.g., aerospace, defense, electrification, data centers, and commercial HVAC – have remained strong and continued to provide a foundation.

At the same time, the weak spots remain consistent: Freight volumes are soft, residential HVAC demand is down, China-exposed businesses continue to struggle, and consumer-related industrial spending remains muted.

The focus now falls on the middle: non-residential construction, general machinery, and the broad universe of component and equipment makers. Early sparks are appearing in these areas. Data center and semiconductor fabrication construction is beginning to spill into adjacent parts of the industrial economy, including the surrounding commercial construction. We are also seeing rising trucking rates and an improving commercial truck cycle, along with more supportive commentary from select industrial companies on order trends. Purchasing managers may move sooner than expected out of fear of falling behind competitors. When combined with potential tax incentives and a more favorable interest rate backdrop, those sparks could drive a broader and more durable recovery.

While the conditions for an inflection are building, we remain watchful rather than convinced and will continue to monitor the data closely as the year unfolds.

Data center and power demand remain intact

If there was one area of the conferences that generated confidence, it was data center infrastructure. Companies with exposure to data center capital spending were emphatic about the durability of demand, and we heard nothing to suggest cracks are forming in that foundation.

What we find increasingly important, however, is where within the data center ecosystem a company sits. We see an important distinction between systems-level players – those providing integrated power management, cooling, and infrastructure solutions – and companies that compete in more discrete component-level categories. The systems players may be better positioned to capture the full value of a complex, fast-moving buildout. When hyperscaler customers are racing to deploy capacity, they lean on trusted partners who can deliver comprehensive solutions, not just individual parts.

Power generation is another area of strength. Both established industrial equipment makers and newer entrants serving the power needs of AI infrastructure are well positioned as electricity demand from data centers continues to rise. We believe this theme has meaningful runway.

Industrial software is playing defense – not offense – on AI disruption risk

Perhaps one of the more surprising developments at this year’s conferences was how much of the conversation around AI centered not on opportunity, but risk.

Unlike prior years, where AI discussions tended to focus on productivity gains in new revenue streams, management teams this year arrived armed with carefully prepared explanations for why their software businesses are unlikely to be disrupted by AI-native competitors. The questions directed at industrial automation and process control software companies on this topic were pointed – and noticeably more prevalent than at past conferences.

We think the AI disruption concern is understandable but somewhat overstated for the companies in question. Industrial software that controls or automates physical plants operates in safety-sensitive, highly regulated environments where the consequences of failure are severe. That reality creates meaningful barriers – not just technological, but also legal and operational – that make rapid displacement by an AI-native vendor unlikely. The companies that own the underlying hardware layer and have deep integration into regulated processes are particularly well-insulated.

That said, we are watching select situations where AI disruption risk may be more relevant – particularly where software businesses trade at premium valuations and the competitive moat is less clear. The market is beginning to re-rate some of these names accordingly. AI disruption in industrials is not a blanket risk, nor is it a blanket non-event. The bottom line is, selectivity matters.

IMPORTANT INFORMATION

Artificial intelligence (“AI”) focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm.

Industrial industries can be significantly affected by general economic trends, changes in consumer sentiment, commodity prices, government regulation, import controls, and worldwide competition, and can be subject to liability for environmental damage and safety.