by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our perspective on the recent sell-off in tech stocks. We then examine rising tensions between the US and Iran. Next, we address the proposed solutions by homebuilders to improve housing affordability, Texas’s renewed scrutiny of data center projects, and reports of Russian efforts to intercept allied satellites. We round out the report with a summary of key economic data from the US and global markets.

AI Disruption: On Tuesday, tech stocks sold off following the release of new AI software that could threaten the core businesses of several major firms. Anthropic, the creator of the Claude chatbot, unveiled an AI-powered automation tool capable of handling routine legal tasks such as contract reviews, NDA triage, compliance workflows, legal briefings, and template responses. The company also introduced a similar tool for customer service and sales. The announcement has intensified concerns that traditional business models may soon be disrupted by AI.

• The sell-off in tech shares reflects growing concerns that recent AI breakthroughs could eventually impact the hyperscalers. Companies like Microsoft, Amazon, and Alphabet provide the computing infrastructure that is powering many of the firms now at risk. Investors worry that if these clients become obsolete, their demand for cloud computing could decline, ultimately hurting the hyperscalers themselves.
• While the risk to hyperscalers may not pose an immediate threat, it could deepen valuation concerns among investors. In recent quarters, these companies have significantly increased spending on data center expansion, with some even taking on debt to meet anticipated future demand. If their client base begins to shrink due to AI-driven disruption, it could further fuel worries about a potential AI bubble.
• Heightened concerns over potential disruptions are narrowing investor focus toward immediate bottom-line earnings. This represents a stark pivot from last year’s tolerance for aggressive expansion and infrastructure scaling. As the market’s patience for “growth-at-any-cost” wears thin, we anticipate significant volatility if industry leaders fail to deliver on these sharpened expectations.
• At this time, we believe the AI rally still has momentum, though some signs of fatigue have begun to emerge. We continue to recommend diversification as the best course of action to hedge against concentrated exposure to the tech sector. In our view, expanding investments across other industries as well as countries can provide valuable protection during periods of market volatility, particularly if AI-related expectations are eventually revised lower.

Iran Escalation: Tensions between the United States and Iran have intensified ahead of upcoming nuclear talks. On Tuesday, a US Navy ship reportedly shot down an Iranian drone that approached the USS Abraham Lincoln in the Arabian Sea. The incident coincided with another confrontation in which Islamic Revolutionary Guard Corps vessels allegedly harassed US-flagged ships in the Strait of Hormuz. Together, these events underscore the escalating hostilities between the two nations as they prepare for high-stakes negotiations.

• As nuclear talks approach, the White House appears intent on pressing Iran to accept a set of reported concessions aimed at preventing further escalation. Washington’s three principal demands are: a permanent end to uranium enrichment on Iranian soil and the disposal or removal of existing enriched uranium stockpiles, strict limits on the range and number of Iran’s ballistic missiles, and a halt to Tehran’s support for regional proxy groups such as the Houthis, Hezbollah, and Hamas.
• While Iran has stated that it does not seek a conflict with the US, it has already signaled a willingness to push back in the negotiations. In the run-up to the talks, Tehran has reportedly demanded changes to both the venue and the format, pressing for the meetings to be moved from Istanbul to Oman and for direct, bilateral discussions with the United States focused on nuclear issues rather than a broader, regionally framed dialogue involving other Middle Eastern states.
• As of now, tensions may be starting to ease. Iran’s demands do not appear to have met significant resistance from the White House, which has agreed to move the venue to Oman and is still determining whether other Middle Eastern leaders will participate in the talks. However, it is still unclear what concessions Tehran is willing to make in order satisfy the US wishes to end Iran’s nuclear program.
• Rising tensions between Iran and the United States reflect the broader geopolitical risks that continue to affect financial markets. We believe the most effective protection against these rising risks is to invest in precious metals, which have historically served as safe-haven assets. That said, we remain cautiously optimistic that the two countries will ultimately reach an agreement that prevents further military escalation.

Trump Homes: Several national homebuilders are reportedly in early-stage discussions on a potentially significant “Trump Homes” initiative. The proposal aims to develop up to one million entry-level homes via a rent-to-own model. While the White House has not formally endorsed the plan, it signals a broader, active dialogue between the administration and industry on innovative ownership pathways. We believe firms that pivot toward these national objectives will likely secure a competitive advantage through increased federal support.

Data Center Resistance: Growing concerns over grid reliability have prompted Texas regulators to scrutinize the rapid expansion of data centers. The Electric Reliability Council of Texas (ERCOT) plans to revisit 8.2 gigawatts’ worth of approved projects to verify that they won’t jeopardize the state’s power supply. This move is designed to ensure that these high-capacity sites can operate without threatening the stability of the grid or being forced offline during energy spikes.

Russian Spies: European security officials have accused Moscow of intercepting at least a dozen Western satellites using its own space-based assets. The interceptions are seen as a serious national security risk, raising concerns that hostile actors could not only access sensitive communications but also disrupt satellite operations, potentially altering trajectories or causing crashes. The incident is widely viewed as an example of hybrid warfare extending into space, and it is likely to reinforce expectations of higher defense spending by governments.

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