Wall Street begins to block out the noise of the war! AI computing power and data center electricity are taking advantage of the "counterattack trend".

Since the joint airstrikes by the United States and Israel on Iran at the end of February, which led to the outbreak of the Iran war, nearly two months have passed. Although there is currently a short-term ceasefire and peace status for two weeks, there is still no clear sign of the end of the war. Meanwhile, an important trend that individual investors should pay attention to is that after experiencing the initial series of intense sell-offs, Wall Street institutional investment forces seem to be shielding these war-related noises outside. Wall Street no longer sees the war as the "core variable determining the market direction" as it did in early March, but is largely "ignoring the sound of war." This can also explain why the two major core indices of the US stock market the S&P 500 Index and the Nasdaq 100 Index, have completely recovered all the losses caused by the Middle East geopolitical conflict at the end of February. Since March 27, the benchmark S&P 500 index has risen by nearly 10%, heading towards three consecutive weeks of gains. During the same period, the Nasdaq 100 index, known as the "global tech stock benchmark," has risen by about 12%, closing higher for 10 consecutive trading days, setting a record for the longest continuous rise since 2021. After the military strikes by the United States and Israel against Iran led to a five-week decline, these top global traders on Wall Street are now indifferent to the negative dynamics and progress in Middle East geopolitics. They are choosing to continue pouring into the stock market at a time when the official start of US stock earnings season and early corporate earnings data and future outlook show an optimistic trend. For the stock market, this is usually not a bad thing, but a signal that risk premiums are gradually being squeezed out: as long as the conflict does not evolve into a sustained energy crisis or profit decline, funds will return to more traditional pricing logic of "profit growth, valuation adjustment, and earnings verification." Risk assets such as cryptocurrencies and stocks are hopeful in the financial market that the US can reach an agreement with Iran, thus ending the expected new round of geopolitical conflicts between the US and Israel and Iran, especially with Bitcoin trading prices rising to their highest level in four weeks. Several Wall Street financial giants directly attribute the resilience of the current stock market to the fact that earnings expectations for companies are still continuing to rise, especially the strong earnings expectations of technology companies closely related to AI computing infrastructure, which have not been disrupted by war. As a result, BlackRock has raised its rating on US stock market and emerging market stocks to "overweight," indicating that the expected profit growth for the technology sector in 2026 has increased to 43%; Citigroup has also raised its rating on US stocks to "overweight," believing that the recent market corrections make valuations more attractive, and the contribution of US technology to global profit growth continues to rise. At the same time, those stocks directly related to AI computing infrastructure, labeled with "earnings certainty + high beta attributes," such as Nvidia, TSMC, AMD, and the "AI computing supergroup" led by Broadcom, are often the most sensitive, first-moving, and with the largest gains in the overall stock market or tech stock rebound logic. The underlying logic is extremely "hardcore": this layer is directly tied to the record-breaking AI capital expenditures of tech giants, not just storytelling. AI hyperscalers (such as Google, Microsoft, and Amazon, among others) are continuing their capital expenditure arms race, and as long as they are "more willing to borrow and lay off employees, and not willing to retreat in the AI capex arms race," the leaders of the entire AI computing industry still have value in their allocation. From panic selling to "ignoring the sound of war," earnings season and fundamentals reestablish the pricing power Wall Street's top traders are currently indifferent to the negative situation in the Middle East and choose to continue allocating to stock assets; institutional investors are the core behind-the-scenes drivers of this stock market recovery. "It appears that whether it is the stock market or more broadly the financial market, the Strait of Hormuz, in essence, still seems to be blocked." said Doug Peta, chief investment strategist for BCA Research. With rising macroeconomic risks, some quantitative volatility indicators for stocks have started to move in sync, but a new earnings season means that the more likely driver of stock prices towards a new bull market trajectory will be corporate fundamentals and future growth prospects, rather than headlines about Middle East geopolitical issues. According to Mark Hackett, chief market strategist at Nationwide, these institutional investors on Wall Street are the core driving force behind this stock market recovery. After experiencing aggressive selling, market attention has returned to the corporate fundamentals of earnings season, and he believes that these fundamentals are very supportive. At the same time, as the market quickly rebounds and individual stock correlations rise due to the use of index-tracking tools by institutions, there is hope for a significant decline in the future. The one-month realized correlation index for component stocks is currently hovering near its highest level since May, indicating that stock assets are more trading around macroeconomic headlines and less driven by company fundamentals. Hackett says, "As the market stabilizes, I expect us to return to a pricing trend similar to the beginning of the year, with significant differentiation between winners and losers, where tech stocks, international stocks, small-cap stocks, and value stocks are likely to show stronger performance." Trading in the US stock market on Monday and Tuesday showed a significant easing of anxiety surrounding the war. Following the lack of a breakthrough in peace talks between the US and Iran over the weekend, the S&P 500 index opened flat on Monday but closed up by 1% by the end of the day. At the same time, this key US stock benchmark also erased all losses driven by the war. The index rose by 1.2% on Tuesday. Since the temporary low on March 30, the S&P 500 index has gained nearly 10%. Wall Street veteran strategist Ed Yardeni has seen this situation before. In a report to investors on Sunday, he stated that just as the financial markets have learned to coexist with the long-term geopolitical conflict between Russia and Ukraine, they are now learning to coexist with the Iran war. Yardeni insists on his assessment that the S&P 500 index officially bottomed out on March 30. With the US and Iran now negotiating on the technical conditions related to the Islamic Republic's nuclear program, Peta from BCA Research expects rapid progress towards easing tensions between the two sides. As peace talks progress, most of the risk premiums imposed on stocks and bonds during the geopolitical conflict will be removed from the financial markets. However, Lori Calvasina, a stock market strategist at RBC Capital Markets, believes that the lack of clarity in the prospects for peace talks and a series of aftershock-like chain reactions that conflicts can bring increase the risk of a "growth scare-driven drop." Calvasina says that although the S&P 500 index is no longer expensive at its March low, stocks have not fallen to a level where valuations alone provide enough reason for investors to buy into the entire market. Calvasina wrote in a report to clients on Sunday, "This is important because if the narrative around the geopolitical war or its tangible impacts changes from a valuation perspective, stocks still have room to fall again, possibly even more than before." Meanwhile, Hackett from Nationwide doubts whether the S&P 500 index can return to its record highs before the situation around the conflict becomes clearer. Hackett said, "I doubt whether we can decisively break through to record highs before there are some meaningful advances in the agreement. But when that day comes, with conservative positions, strong fundamentals, and reset expectations, there will be a buildup of potential energy like a spring." The next most worth buying investment themes in the next stage are those that can translate record AI capital expenditures into real profits, meaning that future investment strategies will focus more on offensive investment themes related to the AI computing industry chain and data center power chain. After the official start of the US earnings season on Monday, strategists from Citigroup, one of Wall Street's largest financial giants, have joined their Wall Street counterparts in shifting towards a bullish stance on US stocks. They have shifted their rating on the benchmark S&P 500 index from a cautious neutral position to a more constructive bullish view, raising their rating on US stocks to "overweight." This move follows similar optimistic outlooks and judgments given by Goldman Sachs, BlackRock, and Morgan Stanley on US and global stock markets, largely due to the relatively strong profit expansion of US listed companies. With the official start of the US earnings season, the strong profit expansion expectations surrounding the AI computing infrastructure, and the growing market confidence that the US, Israel, and Iran or Lebanon will soon reach a long-term stable ceasefire agreement under domestic pressure, top investment institutions on Wall Street, including BlackRock, Goldman Sachs, and Morgan Stanley, have become more optimistic about the future stock market. They highlight the basis on which they are optimistic, anchored in the market valuation reset, profit resilience, and performance improvement driven by the AI computing trend after the temporary ceasefire with Iran. Clearly, Wall Street seems to be shielding these war-related noises outside and is no longer viewing the war as the "core variable determining the market direction" as it did in early March. Instead, it is largely beginning to "ignore the sound of war." In other words, Wall Street is downgrading the war from a "core variable determining the market direction" to a "variable that can create fluctuations but does not necessarily change the pricing logic." This wave of stock market rebound is driven first and foremost not by a sudden significant improvement in fundamentals, but by the market reassessing the probability that the US-Iran conflict will not escalate in the short term and rapidly shedding the risk premium previously reserved for extreme tail risks. Goldman Sachs notes that hedge funds shifted to a net long position for the first time in eight weeks last week, indicating that the most extreme defensive positions have started to reverse; at the same time, Goldman Sachs trading desks estimate that system funds such as CTA sold approximately $48 billion worth of S&P 500 futures during the recent month of selling driven by war concerns but are now prepared to buy back in large quantities, with potential US stock buying pressure amounting to around $43.5 billion to $45 billion in the coming week, which is in the record-level range. In other words, short covering is the "ignition source," and systematic funds sweeping is the "accelerant," so this rise is not just about improving sentiment but also about the internal structural forces driving the index up. As long as the conflict does not escalate further, the next most worthwhile investment theme will still be those assets that can transform record AI capital expenditures into actual profits, indicating that future investment strategies will continue to focus on investment themes aligned with the AI computing infrastructure chain and data center power chain. BlackRock's stock strategists have repositioned their stance to "overweight" US and emerging market stock assets, mainly because they believe the substantial damage to global economic growth caused by a new round of Middle East geopolitical conflicts "is likely to be very manageable." In terms of core investment themes/directions, BlackRock's strategists are particularly bullish on semiconductor stocks closely related to AI computing infrastructure, in the US stock market and lead players in the AI computing industrial chain in South Korea and Taiwan. BlackRock emphasizes the upcoming US earnings season, proclaiming that the profit growth engine can sustain the main theme of the US stock bull market. Strategists note, "Even during the geopolitical conflict, corporate earnings expectations are still rising, with a large part of the logic and reasons coming from the strong AI-related investment themes driving robust AI computing demand." A forecast from Bank of America's strategists recently showed that driven by the leading players in the global core AI computing industry chain (Nvidia, Broadcom, TSMC, and Marvell Technology, leading with forward valuations between 15x-20x) and the accelerated growth in storage/logic chips, 2.5D/3D advanced packaging, and data center power chain domains, the total global semiconductor market size is expected to reach $2 trillion by 2030, with an annual compound growth rate of 20% from 2025 to 2030. In comparison, by at least 2025, the global semiconductor market size will be less than $1 trillion.