Technology

AI demand remains strong, but the capex boom is creating a growing divide within Tech. Hyperscalers combine superior margins, capital efficiency and financing capacity with multiple paths to monetize AI investment. Neoclouds rely more heavily on leverage and scarcity economics, potentially making them more vulnerable should capacity expand and compute pricing normalize.

AI excels at IQ but fails miserably at EQ. Hence, AI will obsolete any job that relies on IQ, including many graduate-level jobs. But high-EQ humans will be in high demand to pair up with AI, and many of these jobs will be middle income jobs. We discuss the implication for the economy and markets. Plus, a new tactical trade is underweight global tech versus healthcare.

The S&P 500 rally is likely more than just risk-relief. Market internals reflect strengthening economic growth and higher inflation, with support coming from robust earnings. Tight financial conditions have compressed valuations, particularly within the Tech sector. We are initiating a long Software trade ahead of earnings season, given that multiples have declined and earnings growth is strong.

Forced to choose between growth and inflation, the Fed will save growth and the stock market rather than the 2 percent inflation target and the bond market.

Tech has starkly underperformed other equity sectors and the tech-heavy US market has underperformed non-US markets, but global stocks are up and have comfortably outperformed bonds. This pattern of performances is likely to continue through the rest of 2026. Plus, two new tactical trades are: long coffee; and long ETH.