The stock market has eyes only for AI

After the recent rebound in US equities, stock markets are finding it harder to maintain their momentum. The S&P 500 and the Stoxx Europe 600 have risen in only one of the past four sessions. On Wall Street, AI suppliers remain in a league of their own: 17 consecutive gains for the semiconductor index. It is almost enough to make investors forget about the blockade of the Strait of Hormuz.

I have been somewhat surprised in recent days to hear some fairly seasoned observers wonder whether we are in an AI supercycle. Given the vast sums being poured into dedicated infrastructure, the question may sound foolish. In reality, it is not entirely so. An economic supercycle is defined both by its scale and by its duration. In 2026, there is no doubt that the first condition has been met. The second is moving in the right direction, but remains undecided. Investors' frantic buying suggests the odds are favourable. Otherwise, they would not be prepared to pay such rich prices for companies whose share prices have already increased many times over.

A brief stock-market history of AI is useful to set the scene.

Over the past three and a half years, since the launch of the first public version of ChatGPT, the tailwind has swept through several sectors, primarily in technology. At different stages, some business lines have been more fashionable than others. Broadly speaking, however, the entire ecosystem has benefited. A rough stock-market timeline would begin with the large platforms known as hyperscalers: deep-pocketed giants whose dominant positions allow them to deploy AI-related tools and services at scale, such as Microsoft and Alphabet. The focus then moved to the sector's picks-and-shovels suppliers, the Nvidia and Broadcom phase, before their own suppliers came into vogue, the ASML, TSMC and Applied Materials phase. The frenzy spread to adjacent areas, including server makers such as Super Micro Computer, data-centre operators such as CoreWeave, and electrical equipment groups such as Schneider, Vertiv and Eaton, as well as power companies including NextEra and Constellation Energy. Then came the bottlenecks, whether in connectivity, with names such as Lumentum, or in memory chips, with SK Hynix and Micron. Even the ageing and wobbly Intel has found a role: the shares jumped 20% in after-hours trading last night after AI-boosted results.

In this landscape, Europe is lagging behind. The money is flowing mainly into US and Asian companies. The best large-cap European proxies can be counted on two hands: ASML, Siemens Energy and Schneider, for example, as well as Infineon and STMicroelectronics, which caught the wave late by proving they were not entirely yesterday's story in this theme. Beyond that, investors have to look at smaller companies. The valuations of these stocks bear little relation to their current fundamentals. They rest on the promise of brighter days ahead. To paraphrase an old advertisement, every would-be nugget hunter has tried their luck.

Our colleagues at AlphaValue have published a note observing that European companies exposed, directly or indirectly, to AI have quite literally taken off since the start of the war in Iran. Their outperformance "has reached the staggering level of 30%, with a sharp acceleration over the past two weeks". The logic behind this is fairly simple, almost obvious: why invest anywhere outside technology and energy, when AI-related investment shows no sign of slowing? If AlphaValue's forecasts are correct, Europe's new AI stars are trading on 56 times 2026 earnings and 40 times 2027 earnings. Those are super-multiples that can be justified only if a supercycle is confirmed. While AlphaValue focuses on a coverage universe of 600 stocks, we extended the exercise to every European listed company worth more than EUR1bn. The result is even more striking: 16 of the 17 strongest performers of 2026 have a direct link to AI investment.

The supercycle is therefore well under way. It has not really been shaken by the concerns that have emerged, particularly around employment and the long-term viability of sectors facing an existential threat after the collapse of their barriers to entry. That said, this is not exactly a blind spot, as shown by the slump in software companies and the very visible job cuts building up across the technology sector. Rather, the supercycle is for now far more powerful than its side-effects.

Meanwhile, oil is rising for a fifth consecutive day, with Brent trading around USD105 a barrel. From the outside, the "talks" between Washington and Tehran on ending the war in Iran look like little more than a shouting match. Donald Trump's own diplomatic advisers are said to be uneasy about the president's social-media tirades. The White House announcement that the ceasefire between Israel and Lebanon has been extended has not changed the picture: the key issue remains the reopening of the Strait of Hormuz.

Yesterday, US markets fell, while European bourses moved with earnings releases. Paris and Zurich were particularly strong, helped by a large batch of solid numbers from local heavyweights. In France, these included L'Oréal, Orange, Safran and STMicro; in Switzerland, Roche and Nestlé. A few company updates are still due before the week is out. Last night, Siemens Energy and Intel delivered, helped, as one might expect, by AI. That should leave indices in decent shape for the final session of the week.

In corporate news:

• Corporate earnings, comments are initial reactions and do not prejudge share-price moves
• Siemens Energy raises its guidance as demand for electrical equipment surges.
• SAP posts higher first-quarter profit and revenue.
• Holcim reports 3.9% organic growth in Q1.
• Kuehne und Nagel reports a decline in first-quarter net profit and revenue.
• AB Volvo comes in slightly ahead of expectations in Q1.
• Siegfried raises its targets.
• BB Biotech narrows its first-quarter loss.
• Coloplast cuts its guidance.
• Adyen is to acquire software company Talon.One for USD878m.
• Electrolux is to raise EUR830m and cut 3,000 jobs.
• JD Sports' chairman resigns after failing to persuade the board to oust the chief executive, according to the FT.
• Banca Monte dei Paschi appoints Luigi Lovaglio as chief executive.
• MPS chief executive is considering selling the bank's stake in Generali, according to the FT.
• BPER announces a merger by absorption of Banca Popolare di Sondrio.
• Intel shares rose after hours following its quarterly results.
• Microsoft offers a voluntary departure plan to around 7% of its US employees. Separately, Michael Burry discloses a new position in Microsoft.
• Meta cuts its workforce by 10% to offset its AI investments.
• Nike cuts more jobs to speed up its turnaround.
• The FDA declines to approve AbbVie's anti-wrinkle treatment.
• Trump says he is "considering" buying Spirit Airlines.
• Accenture announces an investment in Iridius.
• Lockheed Martin confirms Peru's purchase of F-16 fighter jets.
• Today's main releases: SLB, Norfolk Southern Corporation, Charter Communication, ENI, Holcim, Kuehne und Nagel, Telia, Yara...

Analyst Recommendations:

• Hochschild Mining Plc: Canaccord Genuity maintains its buy recommendation and raises the target price from GBX 750 to GBX 805.
• Mondi Plc: UBS maintains its buy recommendation and reduces the target price from GBX 1050 to GBX 970.
• London Stock Exchange Group Plc: Cavendish maintains its buy recommendation and raises the target price from GBX 11700 to GBX 11760.
• Aj Bell Plc: UBS upgrades to buy from under review with a price target raised from GBX 520 to GBX 630.
• Workspace Group Plc: Berenberg maintains its buy recommendation and reduces the target price from GBX 503 to GBX 401.
• London Stock Exchange Group Plc: RBC Capital maintains its outperform rating and raises the target price from GBX 13500 to GBX 13600.
• Coca-Cola Hellenic: Bernstein maintains its outperform recommendation and raises the target price from GBX 5000 to GBX 5050.
• Wh Smith Plc: UBS maintains its neutral recommendation and reduces the target price from GBX 660 to GBX 600.
• J Sainsbury Plc: JP Morgan maintains its overweight recommendation and raises the target price from GBP 3.45 to GBP 3.58.
• London Stock Exchange Group Plc: JP Morgan maintains its overweight recommendation and raises the target price from GBP 137 to GBP 137.50.
• Shell Plc: Scotiabank maintains its sector outperform rating and raises the target price from USD 91 to USD 122.
• Fresnillo Plc: Morgan Stanley maintains its underweight recommendation and raises the target price from GBX 2400 to GBX 2490.