by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an examination of the latest US-Iran confrontation and the potential collapse of the ceasefire. We then examine rising concerns around AI investment, particularly the fears of excessive spending. Next, we cover Marine Le Pen’s decision to run for the French presidency, President Trump’s renewed pressure on NATO, and speculation that the Democratic nominee for a key Senate seat may withdraw from the race. As always, we conclude with a review of recent domestic and international economic data.

Ceasefire Done? The United States and Iran exchanged strikes on Tuesday amid escalating tensions over control of the Strait of Hormuz. The confrontation was reportedly triggered by Iranian attacks on several commercial vessels transiting the strait, including a ship with a Qatari flag. In response, the US not only launched retaliatory strikes but also revoked sanctions waivers that had previously allowed limited Iranian oil exports. The escalation underscores the increasingly fragile balance between diplomacy and direct conflict.

• These latest attacks have cast renewed doubt on the prospects for negotiations between the two sides. President Trump has declared the ceasefire effectively over, while an Iranian official characterized the interim agreement as ineffective. It remains unclear whether talks will resume; however, disputes over control of the Strait of Hormuz continue to represent a central sticking point in any potential negotiations.
• Prior to the escalation, Tehran informed the UN’s maritime body that it asserts jurisdiction over unspecified “parts” of the strait, which it argues would entitle it to levy charges on passing vessels. While Iran has not clarified the exact scope of its claim, it has emphasized that it is not a signatory to the United Nations Convention on the Law of the Sea (UNCLOS), the framework that governs navigational rights and explicitly prohibits the imposition of transit fees in international straits.
• Iran’s push to expand control over maritime traffic comes just as oil flows through the region have begun to recover following the peace pact it signed with the United States last month. Although transit volumes remain well below pre‑conflict levels, there are signs that vessels are moving through the strait more freely and analysts are expecting output to gradually return to normal by 2027.
• Iran’s recent actions underscore its determination to assert control over surrounding waters. Its repeated use of force not only projects power across the Gulf but also signals that it views the strait as within its sphere of influence. However, the United States appears unwilling to tolerate such a shift, increasing the risk of renewed confrontation between the two sides. Should tensions escalate further, financial markets are likely to see heightened volatility, with risk assets facing the greatest pressure.

AI Angst: AI companies are aggressively raising capital to expand compute capacity in response to surging demand. On Tuesday, Amazon announced plans to raise at least $25 billion through a bond sale to support its AI infrastructure buildout. Meanwhile, South Korean chipmaker SK Hynix saw its US equity offering become oversubscribed. Despite robust earnings reports, the mounting need for funding continues to fuel market anxiety, as investors grow increasingly concerned that costs may be spiraling out of control.

• Rising concerns over the scale of AI-related spending have prompted a rotation out of the traditional mega-cap leaders that have supported broader equity markets and into companies more directly leveraged to that investment cycle. Most notably, capital has shifted away from the “Magnificent 7” and toward firms providing memory chips and data storage, which stand to benefit more immediately from the buildout of AI infrastructure.
• Even so, there are emerging signs that even the primary beneficiaries of AI infrastructure spending are beginning to face pressures. On Tuesday, Samsung’s strong earnings failed to impress investors. Despite reporting a roughly 19-fold increase in year-over-year profits, the results exceeded expectations by only 6%, prompting some investors to take profits amid already-elevated forecasts.
• That said, there are signs that valuations are becoming more attractive. Most notably, Nvidia is now trading at its lowest multiple since 2019. While part of the compression reflects investor rotation out of the stock, it also underscores the company’s consistent ability to deliver strong earnings, with analysts continuing to revise estimates higher. As a result, the Magnificent 7 may now offer more compelling valuations than in recent periods, despite the turbulence they have recently faced.
• While there is a strong case for maintaining meaningful exposure to AI within portfolios, we believe opportunities are emerging elsewhere in the market. Sectors such as industrials and energy appear particularly attractive, as they benefit from AI-driven investment without being solely dependent on it for growth. In addition, dividend-paying equities may offer a compelling option for investors seeking more stable income streams.

Le Pen 2027? Marine Le Pen, the far‑right leader of the populist National Rally party, has announced that she intends to run for the French presidency in 2027. Her declaration comes shortly after a court ordered her to wear an electronic ankle bracelet following her conviction for misusing public funds, while still permitting her to run for elected office. Her party is currently leading national polls and is widely seen as a frontrunner to form a government once parliamentary elections are called.

NATO Tension: President Trump’s renewed push to acquire Greenland is increasingly straining relations with NATO allies. His insistence on revisiting the issue appears to stem from frustration over limited European support on Iran. Although NATO members have repeatedly asserted that Greenland is not for sale, the episode has left many allies deeply uneasy. The friction comes as Trump is mulling over skipping this year’s summit, which has prompted several member states to question whether the event should even be hosted next year to avoid further confrontations.

Platner Dropping Out? Democratic candidate Graham Platner is expected to end his campaign as allegations of sexual misconduct continue to undermine his candidacy. Attention has now shifted to who will replace him on the ballot ahead of the July 27 deadline, with Troy Jackson emerging as a potential contender, alongside speculation that Janet Mills could enter the race. Platner’s withdrawal complicates the Democratic field and may improve the likelihood of Republicans maintaining control of the seat.

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