There is no AI Bubble.
Weekly Plan 8.2.26
Hey traders—
You have to bear in mind that market reaction to geopolitical headlines and the actual underlying conflict are two very different things.
President Trump’s comments over the weekend about halting a military strike in exchange for a “rapid deal” and Iran abandoning its nuclear program are naturally going to give algorithms and short-term traders something to chase on Monday.
The immediate assumption being that the Strait of Hormuz could reopen and the situation could quickly de-escalate. But anyone treating one weekend headline as evidence that the broader conflict has been resolved is being disingenuous.
There may be a short-term trade around the headline, but that does not change the structural realities behind the conflict. You cannot use an algorithm-driven market reaction as a valid argument that the geopolitical risk has suddenly disappeared. This thing is headed for a showdown.
Mirage of headlines versus the hard reality. Think Beyond the Headlines.
The current headline narrative is built on shifting foundations. While the US administration claims military strikes are paused pending an immediate deal to end Iran’s nuclear threat and reopen shipping lanes, Iranian state media (both Mehr and Fars) have firmly denied requesting a pause, labeling the claims as a lie and maintaining that the Strait of Hormuz will remain closed as long as US hostility continues.
This is now a pattern.
Deeply entrenched conflicts of this scale do not resolve overnight, especially following decapitation strikes on a nation’s leadership. I do not believe that Iran’s post Mullah power structure can afford to appear to capitulate entirely to military pressure without losing domestic and regional legitimacy. Then, there are other foreign powers like China and Russia which are very much vested in keeping this going for as long as they can.
From my perspective, the trajectory points toward prolonged, volatile negotiations punctuated here and there by asymmetric military escalations, rather than a clean, rapid resolution and peace in the region. Any ceasefire will likely be tactical (to rebuild or reorganize) rather than a permanent strategic end game. I mean just look at Ukraine Russia conflict now almost half a decade old.
The new status quo in energy markets
Iran’s overarching defense policy has permanently shifted toward decentralized, asymmetric warfare. They think they can win.
By blocking the Strait of Hormuz and utilizing proxy forces in the region to strike US-aligned Arab countries (such as Saudi Arabia and in particular the UAE), Iran has proven it can effectively weaponize the global economy. Had it not been for a bunch of AI stocks and a gentle nudge from the President, we will be trading far below the April lows at the moment, not here at 7500!
Look, even if a temporary peace agreement is reached, which I highly doubt, the vulnerability of global energy chokepoints has been exposed. Iran will not permanently discard its most effective leverage. Markets must price in the reality that the Strait of Hormuz is no longer a guaranteed transit route. Now you may think the “cleaner energies” will take over and mitigate some of this damage. Well, we just banned all inverter imports and china happens to be the manufacturer of 80% of clean energy inverters!
The other notion that Iran will wholly and immediately abandon its nuclear program in a single, rapid deal, as indicated by Trump, contradicts decades of Iranian strategic military doctrine. The nuclear program is viewed by Tehran as its ultimate insurance policy against regime change—they are not going to give it up that easily.
So in my view, Iran will likely use its nuclear capabilities as a dial to be turned up or down depending on the immediate pressure it faces, but the core infrastructure and knowledge base will be fiercely protected. We are looking at heighten regional tensions, and hence a premium to the energy markets for years to come. This is a permanent plateau with no backing down now.
If you are focusing on the daily news cycle, you are missing major, multi-year macro shifts triggered by these current policies:
Massive and Permanent Energy Sector Realignment: A permanent geopolitical risk premium will remain attached to Middle Eastern oil and gas. This accelerates the long-term trends toward energy independence in the West, heavily incentivizing investments in domestic production (US shale as an example), alternative energy infrastructure, and non Middle East/Gulf supply chains altogether. The fact that these AI installations guzzle up an entire city’s worth of energy needs a day will hasten this transition.
A Ballooning Defense and Security Boom: The US is currently absorbing massive costs due to this war, it is estimated at over $113 billion by mid-2026 alone, and Department of War has requested a record-breaking Pentagon budgets ($1.5 trillion). The long-term trajectory is a sustained boom in defense related capabilities — contracting, drone warfare, maritime warfare, missiles, intelligence. Hence my bullish call on ITA here just a few days ago at 230. Or even a Boeing at 150!
Shifting Alliances, Gulf State Diversification: Saudi Arabia and the UAE, having faced direct threats to their energy infrastructure, will accelerate decoupling of their long term reliance on the US and US dollar. They do so by not only investing heavily in new oil pipelines rather than rely on the Strait but also they will come closer to China. The world is changing extremely rapidly, on a week by week basis.
To sum it up…
A “rapid peace deal” may provide a brief relief rally in global markets, but the structural damage to US-Iran relations and regional stability has already been done. This is not going to be an overnight fix, and perhaps this is not going to be ever fixed.
The long game is defined by elevated military spending, permanent energy supply chain vulnerabilities, and a Middle East that operates under a constant, low boil threat of asymmetric warfare. Anyone who thinks otherwise perhaps is being too naive.
The end of the bull market?
While all of this is playing out, the AI related investment in the US remains strong.
Valuations remain extremely stretched. The persistent “higher for longer” interest rate environment increases the cost of capital for everyday businesses, pressuring profit margins and consumer spending. Investors naturally begin looking to cycle out of high-growth tech stocks into defensive sectors (like utilities, consumer staples or healthcare) to protect their gains. Some on the Wall Street are pointing to the latest development in the Japanese currency markets, where the US has gone to extreme lengths so as to start buying Japanese Yen— as some sort of carry trade unwind, that portends ill omens for the US stocks.
In my view, against such dramatic background, the AI trade remains an exception, a secular tailwind…
This is why I have been saying for a few weeks now that if you want to see a deeper sell off towards 7200s, you need to see this market begin closing below 7403.
My view is influenced by a key secular trend —
The investment in AI is not currently driven by consumer sentiment, it is being driven by an existential arms race amongst hyperscalers. These companies are pouring hundreds of billions of dollars into domestic AI infrastructure because the perceived risk of falling behind in the AI race is far greater than the risk of overspending. They would rather go bankrupt than be perceived as AI losers.
So, while macro risks weigh, valuations are stifling, inflation is rearing its ugly head again and geopolitics remains a mess, there is one shining light in the risk asset landscape which has so far don a robust job of keeping the ship from sinking.
This 7400 or so level on the emini S&P500 remains sacrosanct. Here a few intermediate levels and some other themes like SPCX going into the week ahead—
I will keep an eye out on 7480 or so this week as an intermediately key level. I think if we hold this level, we are going to trade into 7537 or so, and a daily close above 7537 sets sights on 7700.
If you are super bearish here, I think it behooves to see us go trade below 7403. Minus this scenario, I do not think this is the best timing to be bearish yet.
From a timing perspective when this bubble bursts, context is key.
This context could appear as early as next month when NVDA reports. Or it could linger on for a year or so more.
I think the greatest risk to the AI narrative is not a broad economic recession, but the ROI time frame. If the hyperscalers spend trillions on data centers and power grids, but the underlying AI software applications fail to generate sufficient revenue to justify those costs within the next 1-2 years, capital expenditure will be slashed. If AI spending slows down at the exact same time the broader economy is struggling, it would likely trigger a severe, cross sector bear market reminiscent very much of the dot-com bubble bursting. Now, this is why even when consumer remains stressed, and border economy is in shambles, the markets have barely budged. You need to see material reduction in CAPEX and most of the big tech earnings have gone, and I have not seen a meaningful dent in the spend. Not yet.
This keeps the AI bullish story at play.
Now, tomorrow if we crash below 7403 then some may come out strongly suggesting this is the end. I beg to differ again. A break of 7400 and an opportunity to buy at 7000 is a gift for me personally. Now for me to change my mind, NVDA will have to flop spectacularly when they report in next few weeks. Minus that, I think line of least resistance remains up.
Some may say “but what about Micron” and the likes of SNDK.