The fact that AI stocks held up despite hotter inflation is important. It suggests the market is currently treating AI as a structural earnings story rather than a liquidity story.
The bull case:
Hyperscalers are still spending aggressively on AI infrastructure.
Revenue is increasingly material, not just future promises.
AI capex has become strategic. Companies fear underinvesting more than overinvesting.
Productivity gains from AI could eventually offset some inflation pressures.
The bear case:
Core PCE at 3.3% is moving in the wrong direction for the Fed.
Markets may still be underestimating the probability of rates staying higher for longer.
If bond yields rise sharply again, long-duration AI names become vulnerable regardless of fundamentals.
History shows that even the strongest secular themes can suffer 20-40% drawdowns when liquidity tightens.
Personally, I would not aggressively trim AI exposure yet, but I would become more selective.
In 2023-2025, simply owning AI worked.
In H2 2026, I suspect performance becomes narrower:
Strongest: infrastructure bottlenecks like memory, networking, power and selected data-centre plays.
More vulnerable: speculative AI software names trading mainly on future expectations.
The biggest warning sign would not be inflation alone. It would be inflation staying high while AI capex guidance starts slowing. That combination would hit both valuation and growth assumptions simultaneously.
So my stance is:
Not chasing euphoric rallies.
Still maintaining core AI exposure.
Keeping cash available for volatility.
Rotating toward profitable AI infrastructure rather than pure narrative-driven names.
The market is currently voting that AI earnings growth matters more than inflation. The Fed's challenge is determining whether that remains true if real rates continue climbing.
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