Markets Are Betting That AI Can Outrun Geopolitics

Edmond de Rothschild argues that easing tensions around the Strait of Hormuz and relentless AI investment are allowing markets to look through mounting geopolitical and inflationary risks. 

• Diplomatic progress between the U.S. and Iran pushed oil back below $100/bbl and lifted the S&P 500 to fresh record highs despite lingering supply-chain fragility.
• AI infrastructure spending has become the dominant engine of U.S. growth, with private investment surging 7% annualized and hyperscalers expected to drive a large share of the projected $2.5tn U.S. investment-grade bond issuance market this year.
• The report nevertheless identifies three persistent inflation bottlenecks: energy disruption, semiconductor shortages tied to AI demand, and soaring funding needs across both governments and corporates.

The central question running through the note is whether AI-driven productivity and earnings growth can continue to offset the inflationary and geopolitical fractures building underneath the global economy.