The end of the second quarter brought a powerful rebound in shares linked to artificial intelligence, particularly semiconductor companies and other hardware suppliers benefiting most directly from enormous investment in data-centre expansion. Over the next one or two quarters, however, this hardware segment may begin to lose momentum as markets question how long today’s exceptionally high growth expectations can be sustained.
In practice, this could mean greater volatility and more uneven performance across equity markets. Our quarterly outlook also examines the new era at the Federal Reserve under Chairman Kevin Warsh, as well as whether critical metals and other commodities remain attractive opportunities for traders.
The difficult maths of AI growth: could consensus expectations crack in the third quarter?
John J. Hardy, Chief Macro Strategist at Saxo Bank, notes that SpaceX made a successful stock-market debut at the end of the second quarter. The listing made Elon Musk, at least on paper, the world’s first trillionaire after the company floated a small portion of its shares and raised an impressive $87.5 billion.
SpaceX fits, in a somewhat unconventional way, into the AI narrative and the belief that future capacity for building additional data centres on Earth could be constrained. Under this vision, part of AI infrastructure could eventually be built in space, where low temperatures and a constant supply of solar energy could create a vast market for AI services worth tens of trillions of dollars.
For now, however, the company is losing billions on its terrestrial data centres and renting computing capacity to other AI companies, such as Anthropic, apparently without finding a more profitable use for its own infrastructure.
Leaving aside the profitable launch business and Starlink services, the challenges facing SpaceX’s still very earthbound AI segment are visible elsewhere as well. The frantic pace of current and planned spending by hyperscalers — the largest builders of data centres, including Google, Meta, Amazon, Microsoft and Oracle — has not only continued but accelerated in recent months.
The market consequences are becoming increasingly visible.
Pressure on hyperscalers
The first challenge concerns hyperscalers themselves, as free cash flow has fallen below zero in some cases. These companies have other sources of income: Google and Amazon, for example, run cloud businesses and benefit from strong demand for components such as chips used in their own and third-party data centres.
Yet the scale of investment has become so large that free cash flow has turned sharply negative for some companies, particularly Amazon and Oracle.
Extraordinary gains in hardware bottlenecks
The second trend is the exceptional growth and margin expansion seen in hardware bottlenecks, especially memory and data-storage markets. By mid-June 2026, more than half of the 40 semiconductor companies in the widely followed Philadelphia SOX index had risen by more than 100% since the start of the year.
Forecasts still suggest that equipment suppliers — particularly memory and storage producers — will maintain or even strengthen their pricing power. Valuations may appear reasonable in some cases if those forecasts are met. However, any shift in the market narrative could trigger sharp declines.
These companies will be especially sensitive not only to quarterly results but also to the smallest signs that hyperscalers are slowing their capital-expenditure plans.
The expected revolution in consulting and software
The key word is “expected.” Many consulting firms and especially software-as-a-service companies suffered heavy share-price declines before there was clear evidence of meaningful disruption in their financial results.
The reverse has also occurred. Snowflake is one example. After a deep sell-off, its share price more than doubled in the second quarter and returned to multi-year highs as investors concluded that the company could use AI to drive demand for its products.
Many cybersecurity companies followed a similar path. Their shares initially fell on concerns about disruption, only to rebound sharply as markets recognised that new AI agent-based tools could exploit vulnerabilities in widely used software, potentially increasing demand for cybersecurity spending.
In short, markets are still at an early stage of understanding the scale and pattern of AI-driven change across software and other industries.
Overall AI capital expenditure is expected to exceed $800 billion in 2026 and is forecast to continue growing for at least several more years. To justify this scale of spending, the companies making these investments will need to generate annual revenue well above capital expenditure, ideally with margins similar to those in their highly profitable and often quasi-monopolistic business models.
This implies hundreds of billions of dollars in additional after-tax profit. Where will it come from? From displacing existing businesses? From replacing human labour? The long-term potential of AI is likely to be transformative, but the pace of spending and the expected profitability of AI deployment may soon face a more demanding reality check.
The Fed under Kevin Warsh: a generational shift
This outlook was prepared shortly before the first FOMC meeting of the year on June 17, which was also the first meeting chaired by new Federal Reserve Chairman Kevin Warsh.
Ideologically, his appointment represents the most significant shift in the Fed’s direction since 2006, when Ben Bernanke succeeded Alan Greenspan. Warsh resigned from the Federal Reserve Board in early 2011 after disagreeing with the direction of Fed policy, particularly following the announcement of QE2, the second round of quantitative easing, at the end of 2010.
This placed him among those opposed to an overly activist Federal Reserve relying on radical measures to support the economy, including policies based largely on maintaining market confidence. He also argued for reducing the Fed’s balance sheet and for less forward guidance, so that the central bank would not need to retreat from previously announced actions when its economic forecasts proved inaccurate.
As Fed chairman, Warsh faces several major questions.
The growing cost of financing US public debt
At the start of 2026, the current cost of servicing federal debt exceeded the previous record of 3.15% of GDP. The Treasury Department and the Federal Reserve will need to reduce that burden, either by keeping nominal economic growth above monetary-policy rates, cutting interest rates, using measures that encourage savers to buy Treasury bonds, or applying all of these tools at once.
In other words, this is unlikely to be a Federal Reserve that can afford to remain openly hawkish for long.
Nominal growth must exceed bond yields
In a heavily indebted economy, nominal growth must remain above the yields on short- and medium-term Treasury bonds. Otherwise, the real burden of debt will become increasingly difficult to manage, unless the central bank monetises debt — an approach Warsh has opposed.
This means that the Fed and the Treasury Department may need to react quickly and decisively to any evidence of economic weakness. The risk of a slowdown could increase during the third quarter and beyond.
Warsh’s early focus on Fed credibility may sound hawkish. The key question is whether markets and the Treasury can afford that level of discipline.
“The stock market is the economy”
This phrase has become increasingly relevant in the United States since the global financial crisis. Federal tax revenues depend heavily on capital-gains taxes from equity markets, meaning that already-large deficits in good times could quickly worsen if stock prices decline.
At the same time, the wealth effect created by rising share prices supports confidence and spending among wealthier households, especially retirees living off investment portfolios.
However, repeatedly stimulating the economy and protecting financial assets through easy monetary policy has also contributed to widening inequality since the global financial crisis. Treasury Secretary Bessent and Fed Chairman Kevin Warsh have spoken about supporting Main Street rather than Wall Street. The question is whether they will be willing to turn those words into policy, and how.
Supporting the Trump administration’s economic agenda
Beyond the president’s repeated calls for interest-rate cuts, a key issue is the need to restructure supply chains so that the United States is less dependent on China. This is increasingly viewed as a matter of national security.
Some sectors may therefore require subsidies and potentially very low financing costs. Other sectors that previously benefited from excessively easy financial conditions may no longer receive support and may need to finance themselves at market rates.
Overall, Kevin Warsh’s Federal Reserve may have limited room for manoeuvre. Preventing the rising cost of servicing public debt from dominating economic policy is likely to become a central priority.
The Treasury Department may take a larger role, while the Fed acts as a necessary partner. Regardless of market conditions, the Fed may need to remain relatively accommodative so that nominal economic growth stays above US Treasury yields.
Most importantly, whether policy support comes from the Fed, the Treasury or both institutions together, the real cost of servicing US debt must fall soon as a share of GDP. At the same time, this Fed era may represent a meaningful change in style: not necessarily a policy of rescuing every market at all times, but a more selective approach.
Geopolitical challenges and the constraints of the physical world
The war involving Iran, which began in late February, caused the largest disruption to global oil supplies in history. It was our main risk factor in the second-quarter outlook.
Although the interruption to shipping through the Strait of Hormuz lasted much longer than expected, oil prices remained within multi-year ranges and equity markets recovered relatively quickly after their March decline.
What worked differently from previous supply crises and helped prevent a more extreme price surge?
Most importantly, China sharply reduced oil imports. Beijing drew on extensive strategic reserves and used its flexible energy base, ranging from large-scale coal production to a growing share of alternative energy sources such as solar power. A large fleet of flexible electric vehicles, able to switch to electricity instead of petrol when necessary, also helped reduce pressure on fuel demand.
Nevertheless, avoiding renewed turbulence in energy markets at the start of the third quarter will require a rapid normalisation of shipping through the Strait of Hormuz. Oil and refined-product inventories are now very low, even though prices fell sharply on expectations of a lasting ceasefire in June.
The truce could prove fragile in the third quarter and beyond, depending on the outcome of negotiations. Key issues include financing Iran’s reconstruction, the status of frozen Iranian assets, highly enriched uranium and whether Israel will refrain from further action against Hezbollah.
Outside oil and gas, we remain constructive on almost the entire universe of physical commodities — from critical raw materials to copper and other industrial metals.
The critical-materials theme has been widely discussed in recent quarters, and speculation has already appeared in both large and small mining and processing companies. The trend could continue for years as the United States and other major economies build supply chains that are less dependent on China.
Even if economic growth slows somewhat and AI data-centre investment moderates, powerful structural forces are likely to continue supporting demand in the physical economy. The second quarter was a wake-up call for countries that are heavily dependent on oil and gas from the Persian Gulf.
These countries are likely not only to seek new sources of fossil fuels but also to accelerate efforts to build energy systems less dependent on oil and gas. This means more electrification and, from a commodities perspective, stronger demand for copper, lithium and other metals.
Asset-class implications
Global equities and sectors
The base case is that the bull market does not necessarily have to end in the third quarter. However, the market may begin to form an uneven topping pattern that could eventually be followed by a larger correction, either later this year or early next year.
The main constraint will be growing questions about the sustainability of AI investment in the market-leading sectors that have driven capitalisation-weighted global indices. At the same time, other areas could perform strongly, including commodities, energy and defence.
Bonds
We do not expect major volatility in global bond yields. Nominal economic growth must remain solid enough to match or exceed the real burden of debt.
Recent interest-rate tightening cycles in many central banks are largely priced in and are unlikely to be extended significantly unless energy prices rise sharply again. As noted above, the Federal Reserve cannot afford to remain distinctly hawkish. Should signs of economic weakness emerge in the third quarter, it may enter an easing cycle faster than markets currently expect.
Currencies
In the long term, we remain bearish on the US dollar. However, the third quarter may be too early for the dollar’s downtrend to resume decisively.
The United States may be only a few months of weaker economic data away from needing some form of financial repression to maintain liquidity and stability in the Treasury market and ensure debt service remains manageable, especially if rate cuts are not immediately available.
Although many argue that the US has the “cleanest shirt in the dirty laundry” of global imbalances, the scale of American debt is exceptional. Experience from the global financial crisis, the pandemic and other smaller disruptions has taught US institutions to move early to prevent liquidity crises from becoming fully developed.
A relatively more accommodative Fed could keep a lid on the dollar.
Commodities: oil and precious metals
A successful restoration of shipping through the Strait of Hormuz could initially lower oil prices as trapped crude and refined products return to the market. This could push Brent crude toward the low-$80s per barrel.
However, the market may be underestimating the longer-term consequences of the disruption, which has reduced commercial and strategic inventories.
Although reopening is largely priced in, the supply deficit created during the conflict will not disappear overnight. Production in Gulf countries will need to restart, inventories will need to be rebuilt and strategic reserves — particularly in the United States — may need replenishing.
Several Asian countries may also increase their buffer stocks after this supply shock.
At the same time, lower energy prices could boost demand, while much of the offshore storage on tankers that helped cushion the market during the conflict has already been used. In other words, the market has borrowed barrels from the future.
The rebuilding of inventories and the persistence of some geopolitical risk premium should support oil prices above pre-war levels for some time.
Gold
Long-term factors are returning to the forefront. During the conflict involving Iran, gold struggled because higher energy prices pushed up inflation expectations, bond yields and the US dollar.
As energy markets normalise, investors are likely to refocus on the structural forces that have supported gold’s rally in recent years.
Central-bank demand remains strong, with reserve managers continuing to diversify away from the dollar. Concerns about fiscal deficits and the sustainability of public debt also support interest in hard assets.
A softer inflation outlook should reduce pressure on bond yields, creating a more favourable backdrop for gold.
Although short-term volatility may persist after the latest correction, the long-term investment case remains intact. As the inflationary impulse from higher energy prices fades, investors may once again place greater value on gold as a portfolio diversifier and a hedge against fiscal and monetary uncertainty.
Important: This material is provided solely for informational and educational purposes. It does not constitute an investment recommendation, investment advice or an offer to buy or sell financial instruments. The forecasts, opinions and market scenarios presented may not materialise, and investing involves the risk of losing part or all of your capital. Any investment decision should be made independently, taking into account your financial situation, objectives and risk tolerance, and, where appropriate, after consultation with a licensed adviser.
