Published April 24, 2026
As an investor, it can be confusing to see the market shrug off troubling news events. Such is the case with the Strait of Hormuz closure, an event that is clearly disrupting supply chains of many energy, fertilizer, and other products. Stock indexes are at new highs, seemingly ignoring the economic hit that the Strait’s closure will most definitely cause.
Firstly, the stock market did react negatively to the closure of the Strait when it first occurred in March. However, investors fairly quickly came to believe that the War was not likely to escalate beyond that. Once they made that assumption, investors flipped back to looking at the other economic stories of the day, namely the massive AI-related spending which was seemingly unaffected by anything going on in the Middle East. This spending ripples through so many different pieces of the economy – anything and everything related to building: construction, engineering, utilities – alongside the subsequent need for servers and the chips that go inside them.
Below, Delta Research reminds us again how massive this spending is and will be – this is a long process! And just how big the positive effect on earnings potentially is.
“As Artificial Intelligence (AI) models proliferate, the companies building them are racing to be the leader. At the same time, every other company is racing to figure out how best to use AI.
The dynamic is self-reinforcing: the more we spend on AI, the more we have to spend on AI. Last quarter, hyperscalers raised their 2026 capex estimates by roughly $130 billion to $676 billion which equates to more than 90% of expected cash flows this year. AI capex spending is a primary driver of earnings growth.
This month, AI company Anthropic released a model (Mythos) so powerful that access was reportedly restricted to roughly 50 U.S. companies. The concern is that Mythos can identify and exploit software vulnerabilities far beyond what human experts have been able to do – capable of breaching major operating systems and web browsers. That makes banks, power grids, governments, corporations and all of us vulnerable. The New York Times reported that one pro-Kremlin Russian media outlet called the model “worse than a nuclear bomb.”
JPMorgan has indicated it may have to invest up to 10x more in cybersecurity than planned at the start of the year in response to Mythos. Governments around the world are worried both about security and falling behind in AI. Just as the Y2K event spurred a huge technology investment cycle in the late 1990s, the Mythos release may spur renewed spending on security and resiliency.
Technology spending is a bit like chasing your own tail. As investment ramps up, so do support, maintenance and development costs. Higher investment spurs research and development, resulting in faster chips and better software. Faster chips and better software drive the next leg forward, repeating the cycle at a higher level.
From an investor standpoint, technology spending fuels earnings growth and long-term stock appreciation. The sheer magnitude of tech spending, accelerating at a pace, is proving to be a very important driver of stock valuations over time, currently outweighing geopolitical concerns.
Since the start of the war with Iran, S&P 500 earnings have been revised higher by 5%.
Rule of 10
Goldman Sachs began monitoring companies with 10%+ realized sales growth over the prior two years, 10% growth this year, and 10%+ expected revenue growth in the next two years. They call this the ‘Rule of 10.’ The number of Rule of 10 stocks has never been higher.
Earnings season is off to a strong start and we expect results to be broadly ahead of expectations.”
Market Update
After thirteen consecutive sessions higher, the Nasdaq finally found itself negative Monday. But the slip was a very slim -0.3%. The standoff in the Strait of Hormuz continued on. Investors tried to focus this week on the latest round of corporate earnings. Another -0.6% dip Tuesday as peace talks didn’t materialize and Apple’s CEO, Tim Cook, stepped down. Defense-related stocks slid sharply after disappointing earnings while a report on retail sales met expectations. An extension of the ceasefire gave investors cheer Wednesday as did strong earnings from AI and energy equipment company, GE Vernova. Stocks rallied +1%. But the other side of the AI trade showed up Thursday when earnings reports from software company ServiceNow, tech service provider IBM, and car maker Tesla all conspired to hurt stocks. But the step back was a modest -0.5%. A +23% gain for semiconductor maker Intel sent the Nasdaq on a powerful +1.9% ride Friday. The entire semiconductor sector rose sharply throughout the day in a continuation of a month-long rally. The sector has yet to record a down day in three weeks! But the rest of the market showed much less enthusiasm this week with oil prices surging back near their highs from the beginning of the war.
Stocks continued their winning ways this week as earnings for semiconductor companies kept the fire burning under those shares to propel the Nasdaq 100 (QQQ) to a +2.32% weekly gain. But the gains were far more sparse for the rest of the market. The S&P 500 (SPY) saw choppy trading and a +0.54% lift. Small cap shares (IWM) were higher by only +0.32%.
Warm wishes and until next week.