Key Takeaways:
A stark divergence is splitting the global stock market, as an artificial intelligence boom papers over the widening cracks from geopolitical conflict.
In the two months since a major conflict erupted in the Middle East, an artificial intelligence-fueled frenzy has added over $5.4 trillion to the value of the world’s largest companies. The surge, which has pushed the semiconductor sector’s value up 26 percent, is masking the war’s growing impact on the physical economy, where companies are warning of rising costs and slowing demand.
“Investors are returning to technology stocks in an environment of ‘extreme macro uncertainty’ to pursue the ‘earnings certainty’ of the U.S. tech sector,” said Luca Paolini, chief strategist at Pictet Asset Management. “After the ceasefire, the market's focus returned entirely to AI.”
The resilience of the AI-led rally is notable compared to previous global shocks. In the first 10 weeks of the conflict, companies with a market value over $10 billion saw their worth climb by $5.6 trillion. This contrasts sharply with a $2.5 trillion drop for the same cohort after Russia’s invasion of Ukraine and a more than $9 trillion evaporation at the start of the COVID-19 pandemic. Data from AlphaSense shows nearly two-thirds of large-cap firms mentioned AI in their first-quarter earnings calls, double the number that discussed the Middle East conflict.
The war’s impact has created clear winners and losers within the energy sector, even as oil prices have climbed roughly 50 percent. Saudi Aramco’s market value swelled by $1440 billion, benefiting from higher prices that add about $1 billion in free cash flow for every dollar increase in oil. Companies with less direct exposure to the conflict, like Norway’s Equinor, BP, and TotalEnergies, saw gains of 24 percent, 14 percent, and 16 percent, respectively.
In contrast, companies with assets in the conflict zone have suffered. ExxonMobil’s market capitalization has fallen by about $28 billion, or four percent, as it faces billions in repair costs for facilities damaged in Qatar’s Ras Laffan Industrial City. Shell faces a similar situation, highlighting the deep divide based on geographic exposure.
For sectors reliant on global supply chains and consumer confidence, the conflict has brought a cascade of negative pressures. The closure of the Strait of Hormuz has driven up logistics costs, prompting consumer goods giants like Procter & Gamble and Kimberly-Clark to warn of price hikes.
Luxury groups LVMH and Hermes are under pressure from declining demand. Automakers including Nissan, Toyota, and Stellantis are grappling with a combination of supply chain disruptions, rising aluminum prices, and a sudden drop in Middle East demand. Håkan Samuelsson, CEO of Volvo Cars, said his biggest concern is the decline in U.S. consumer confidence. "This puts pressure on the entire economy, people are starting to worry about whether they will lose their jobs... so now is not the time to buy a car or anything," he said.
This article is for informational purposes only and does not constitute investment advice.
