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Hyperscaler capex estimates have inflected sharply in the past year
Source: J.P. Morgan Asset Management, Bloomberg. Data reflect consensus estimates, Data as of 22 July 2026.
What happened last week?
Global markets
Global equities ended the past week modestly lower, with the MSCI AC World Index slipping 0.3% as investors navigated a fresh escalation in the Middle East alongside a sharp reassessment of Big Tech's AI spending. Oil was the clearest transmission channel: attacks on tankers in the Red Sea pushed Brent crude toward the $100/barrel mark, layering onto the existing risk premium and reawakening inflation concerns just as central banks prepare for policy meetings.
The stock price reactions were often disconnected from the underlying earnings picture. With roughly a quarter of both the S&P 500 and STOXX 600 having now reported Q2 results, the beat rate and pace of earnings growth have been unambiguously strong, and full-year consensus estimates have been revised higher across every major region. What spooked investors instead was capital spending. Several of the largest technology companies said this week that they plan to spend even more on AI infrastructure. Investors focused on that gap between rising spending and falling cash generation, and sold the shares even where the quarter itself was good.
The divergence between styles was the clearest signal beneath the headline figures. MSCI ACWI Growth fell 1.1% while MSCI ACWI Value advanced 0.6%, as capital rotated away from richly valued, AI-exposed growth names and into cyclicals, energy and defensives. Markets outside the US held up notably better, with MSCI ACWI ex-USA gaining 0.4% and MSCI Emerging Markets adding 0.5%. At the sector level, energy and metals led globally on the oil spike, while defence and industrials benefited from the geopolitical backdrop; consumer discretionary and communication services were the standout laggards worldwide, weighed down almost entirely by the AI-capex names at the centre of the week's reassessment
US
US stocks lagged most other major markets. The S&P 500 fell 0.6% and the Nasdaq 100 dropped 1.6%, its second straight weekly decline. Small caps also struggled, with the Russell 2000 down 1.1%. However, the equal-weighted S&P 500 was roughly flat, showing that the pain was concentrated in a handful of large stocks rather than spread across the market. The week's big story was a sharp sell-off in several of the "Magnificent Seven" names. Their earnings beat expectations, but investors grew concerned that AI spending is now outpacing the cash these companies generate. Tesla and Meta each fell close to 18% and 8% respectively, Alphabet and Amazon also dropped sharply, and Microsoft slipped further. Nvidia was the one exception, ending the week higher. By sector, energy and metals and mining were the standout winners as oil prices rose, while utilities also attracted safety-seeking buyers. Consumer discretionary was by far the worst-performing sector, hit hard by the tech sell-off, with communication services close behind. On the economic front, the picture was mixed: business activity data showed the fastest growth in eight months, but new tariffs from the White House added uncertainty, and investors turned cautious ahead of next week's Federal Reserve meeting.
Europe
European equities were broadly resilient, with the regional benchmark little changed over the week even as growth-sensitive pockets of the market came under pressure. National markets diverged modestly, with the UK and Germany each gaining around half a percent and Spain's IBEX 35 among the strongest performers, while France and Italy posted small declines and Swiss equities underperformed. The standout theme was a rotation into defence and energy, with the pan-European defence complex among the best-performing groups of the week on continued geopolitical risk and a sizeable buyback announcement from a major aerospace name, while energy shares tracked the rally in crude prices that followed the Red Sea tanker attacks. Banks also had a strong week, extending the momentum seen in the opening fortnight of the reporting season, as record-level results across several major lenders, underpinned by robust capital-markets activity, reinforced the sector's earnings trajectory even as the market grew more selective about rewarding individual names on cost and overhang concerns. On the downside, staples and telecoms were the clearest underperformers, alongside a milder pullback in consumer discretionary, as defensive bond proxies lost ground to the broader rotation into cyclicals.
Rest of the world
Emerging markets outperformed developed peers on aggregate, with MSCI Emerging Markets up 0.5%, though performance across the region was highly uneven. Japan was among the strongest markets, supported by a weaker yen even as core inflation accelerated on the back of higher energy costs, reinforcing the case for continued Bank of Japan vigilance. Taiwan also advanced firmly, with the AI-linked semiconductor supply chain proving comparatively resilient despite the turbulence in US megacap technology, while Brazil and Singapore posted solid gains. China ended the week higher at the index level, even as a large domestic memory-chip listing stirred some concern about liquidity being diverted from the broader technology complex. By contrast, Korea and India were the region's clear underperformers, with Korean equities whipsawed by a volatile mid-week session before settling lower on the week, and Indian equities extending their recent underperformance. Emerging market internet and technology names, as captured by the EMQQ index, also lagged, consistent with the broader global retreat from richly valued growth exposure over the period.
Our view on equity
Equity asset class
We maintain equity exposure at the upper end of our neutral allocation range.
Earnings
After a strong Q1 earnings season and upward guidance revisions, 2026 earnings expectations have been revised higher across all major regions and are now running at double-digit growth rates. Operating margins have reached all-time highs and continue to accelerate.
Valuation
Although equity prices have reached new record highs, forward P/E multiples have edged lower because EPS growth has outpaced share price gains. Valuations remain above historical averages in the S&P 500 and Nikkei, while the STOXX Europe 600 and Asia ex-Japan look relatively more attractive.
Risks
The main risk to this constructive view is a renewed rise in rates and inflation expectations, which could compress multiples and pressure valuations.
Disclaimer
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