May 08, 2026

Key takeaways

• Markets continue to look through geopolitical uncertainty as resilient economic growth, strong earnings, and accelerating AI investment remain the dominant drivers of equity returns.
• The AI investment cycle is broadening beyond US mega-cap technology, with emerging markets increasingly benefiting through semiconductor manufacturing, hardware production and infrastructure tied to the global AI build-out.
• Emerging markets are also benefiting from a more supportive macro-economic backdrop — including a weaker US dollar, improving earnings momentum, and attractive valuations.

Despite the conflict in the Middle East, rising oil prices, and ongoing uncertainty, equity markets continue to push higher. Tensions in the Middle East and the recent rise in oil prices have created understandable concern for investors, but markets are increasingly viewing these developments as temporary disruptions rather than lasting economic shocks.

Instead, investors remain focused on what is driving markets today: resilient economic growth, strong corporate earnings, and the continued acceleration of Artificial Intelligence (AI)-related investment. Importantly, this is no longer just a United States (US) technology story.

Markets are following the money

The dominant force in markets remains the enormous amount of spending tied to AI. Large technology companies continue to invest heavily in data centers, semiconductors, networking equipment, and power infrastructure to support growing AI demand. This matters because markets are no longer rewarding AI potential alone — they are rewarding the companies and regions receiving the real economic dollars flowing from the AI buildout.

While US mega-cap technology companies remain central beneficiaries, the ripple effects are now spreading globally. Industrials, infrastructure providers, manufacturers, and power companies are increasingly participating in the rally as AI investment expands beyond software and into the physical economy.

Emerging markets are becoming key AI beneficiaries

One of the most important market developments this year has been the strengthening performance of emerging markets. As hopes of de-escalation improved sentiment in April, emerging markets outperformed the US. Year-to-date, the performance gap is even wider, highlighting a meaningful shift in global equity leadership. And the primary reason is AI.

Emerging markets are becoming increasingly important to the global AI supply chain, particularly in North Asia. Countries such as Taiwan and South Korea are at the center of global semiconductor and hardware production, supplying many of the advanced chips, memory, and components needed to power AI systems. Emerging markets now account for roughly two-thirds of global semiconductor production, making them foundational enablers of the AI build-out rather than simply indirect beneficiaries.

Importantly, this strength is increasingly supported by fundamentals. Earnings expectations across many emerging markets continue to improve, particularly in AI-linked industries, while valuations remain attractive relative to both history and developed markets.

A better backdrop for emerging markets

The macro-economic environment is also becoming more supportive. A softer US dollar and expectations for lower US interest rates are helping ease financial conditions globally and supporting capital flows into emerging markets. Historically, this combination has been constructive for emerging market equities.

At the same time, global growth has remained resilient despite higher rates and geopolitical uncertainty. This has allowed investors to focus more on long-term structural themes, like AI, rather than short-term volatility.

The bottom line

The AI investment cycle is evolving from a narrow US technology theme into a broader global capital spending story. That shift is creating a wider set of market winners across sectors, industries, and regions.

While risks remain — including higher oil prices, geopolitical uncertainty, and elevated valuations in some AI-related areas — the fundamental backdrop remains supportive. Earnings growth is strong, AI investment continues to accelerate, and market leadership is broadening. Increasingly, the next phase of the AI story may be driven not just by the companies building AI models, but by the countries and industries supplying the infrastructure that makes the technology possible.

Disclaimer

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