LONDON, July 12 (Reuters Breakingviews) - Welcome back! The ceasefire in the Strait of Hormuz ended, but financial markets shrugged. Investors are more focused on artificial intelligence. What else should we be thinking about? Email me with your suggestions. (If this newsletter was forwarded to you, sign up here to get it in your inbox for free.)
The artificial intelligence boom remains the dominant topic in financial markets. Despite renewed hostilities in the Strait of Hormuz, investors are mainly motivated by the fear of missing out on the bonanza promised by AI chatbots, data centres, and chips. At the same time, more far-sighted money managers have started preparing for the moment when the AI trade goes into reverse. The trouble is that there are few reliable places to hide.
The obvious assets to avoid in a crash are U.S. technology stocks. The “Magnificent Seven” American firms make up about a third of the S&P 500 Index. But other sectors have also cashed in on the gold rush. Analysts expect the so-called hyperscalers – Alphabet GOOGL.O, Amazon.com AMZN.O, Meta Platforms META.O, Microsoft MSFT.O and Oracle ORCL.N – to collectively shell out $4.8 trillion on AI chips, buildings and energy facilities by 2030. This promised flood of cash has not just lifted chipmakers – the Philadelphia SE Semiconductor Index is up 83% this year – but propelled producers of capital goods, construction firms, and energy utilities.
Overseas markets offer less shelter than before. Emerging market stocks are even more tied to a handful of AI-enhanced firms: three Asian chip giants make up roughly 30% of MSCI’s emerging markets benchmark. (See The Indexes of Power.) Their fortunes are inseparable from Silicon Valley, as SK Hynix underscored with this week’s $26.5 billion Nasdaq share sale. Europe has fewer home-grown tech champions, but Morgan Stanley analysts calculate that its listed companies generate more than half their sales outside the continent.
Other asset classes are also infected with the AI bug. Hyperscalers are increasingly tapping corporate debt markets: The Bank of England reckons they worth roughly $160 billion in the first half of the year – about 50% more than in the whole of 2025. Amazon this week raised another $25 billion. Meanwhile, AI’s thirst for capital has soaked into private credit funds, asset-backed lending, and securitisation markets.
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