Driven by AI Capex

Is the market right to look past the conflict in Iran? With Brent at $108 and risks around the Strait of Hormuz, the concern is real. But as John Authers writes in Bloomberg Opinion, the more structural driver remains earnings.

12 months forward profits have been revised up by roughly $600bn in four months (+12%), one of the strongest upgrades on record. So far, Middle East tensions have had little visible impact on results. Earnings season confirms this: over 80% of companies are beating expectations, with strong surprise levels.

However, the growth is highly concentrated. Semiconductors alone explain around 40% of the upgrade; adding tech hardware and energy brings it close to 95%. The earnings story is essentially an AI capex story.

The key risk is not geopolitical, but the sustainability of this concentration and the assumption that margins — already at record levels — keep expanding. Historically, they don’t.

Markets can continue to rise if earnings grow and multiples hold. But expectations, at close to 20% growth in a mature cycle, are demanding.

The market is making a clear bet: that AI can extend the cycle. Defendable, but narrow.