One week / one topic: Cease and desist

What happened?

Reportedly, we have a ceasefire and scheduled negotiations between Iran and the US. (Israel / Lebanon is much more uncertain)

Immediately after the announcement, equity markets celebrated with an epic short-covering rally – the 3rd largest over the last decade.

Some outcomes look highly questionable however, like for example the Russell 2000 small caps index somehow now being higher than before the attacks on Iran…

While global equities sit just 2% below all-time-highs, bonds remain definitely unimpressed.

Controlled or restricted oil flows – after all, why would Iran give up its leverage on the Strait of Hormuz either now or later? – ultimately mean stickier inflation constraints for central banks.

Especially in Europe, rate cuts look increasingly off the table as hikes have re-entered the distribution of possible outcomes.

While rates look likely to remain the ultimate arbiter of risk, established themes continue to play out in equity markets.

AI hardware, infrastructure providers and enablers continue to benefit from surging capex, skyrocketing token usage and messianic rhetoric. (All business is show business…)

Markets seems to have acknowledged the disruptive power of AI to be able to withstand (almost) any macro headwinds, with a fairly nuanced assessment of its implications.

While AI-driven gargantuan investments into physical assets remain a massive boost to earnings per share, terminal value and multiple assumptions are however being massively re-rated. Witness software and ‘AI losers’ stocks.

Investor must synthetize seemingly uncorrelated developments, come rain or come shine.

With that in mind – if growth is ultimately going to hold up despite the still-unforeseeable impact of developments in Iran – how attractive are the opportunities to increase positions in beaten-down equity sectors?

Our observations

• Fundamentals: While tariffs and then war took many of the headlines over the last 18 months, Tech stocks started underperforming already in early 2025 – remember the ‘DeepSeek moment’?

  After further weakness this year due to concerns about durability of competitive moats and terminal value, the sector is now much more attractively valued on a relative basis.

• Price action: The violence of the re-rating across many segments of Tech equities has been remarkable.

  It’s not only software stocks that have been dumped, as even investor darlings like Microsoft are currently trading at multi-year valuation lows.

• Investor beliefs: As we all struggle with the feeling of being trapped inside concentric dystopias, prices keep moving.

  If Iran has shifted into ‘perhaps this will be solved, somehow’… do investors have the bandwidth to remain discerning about available opportunities?

So what?

Beyond any self-aggrandizing statements about regime change / new eras / history-in-the-making, we do inhabit a much more uncertain world than just a few years ago.

Ceasefire negotiations have morphed into a threatened naval blockade in less than 21 hours…

If that’s the case, the current opportunity to buy Tech stocks at much cheaper relative valuations is compelling in terms of diversifying our portfolio’s underlying base of corporate earnings.

However, it’s key to keep any expression of this investment thesis as agnostic as possible with regards to the ultimate outcome of the AI arms race.

Mantra time: I don’t know, you don’t know, no one knows how this is going to end…

Mood music: Keane – Somewhere Only We Know

By popular demand, here is the One week / One topic playlist