Despite the market volatility, Julius Baer believes there is strong upside for artificial intelligence due to significant data centre demand and signs of monetization.
The S&P 500 is currently undergoing a selloff led by semiconductors – the index is down around 3% in June so far – over concerns about artificial intelligence (AI) valuations, debt-funded spending, and expectations of Fed tightening. However, Julius Baer remains positive on the sector as part of its broader conviction in its cloud computing & AI theme.
According to a mid-year outlook report by the bank, “fears of AI overinvestment have faded” with broad-based consensus that demand for data centres exceeding supply and signs of monetisation.
“AI is back in the driving seat of the equity market,” Julius Baer said. “The single most important driver of the theme remains capital expenditures by data-centre operators, particularly US hyperscalers.”
Evidence of revenue growth
The bank cited examples of growth including revenue acceleration at frontier AI laboratories like Anthropic and OpenAI based on increasing applications of their models. Hyperscalers are also growing revenues at the fastest pace in five years, primarily driven by stronger advertising revenues and higher spending on cloud services.
Within the US, Julius Baer favours AI‑related sectors with strong earnings momentum, adding that sustained non‑US outperformance is unlikely in the second half of 2026 as long as global energy conditions remain exceptional. It is also constructive on Asian equities, especially in North Asia, given their role in the AI supply chain.
In fixed income, the bank believes that oil prices remain the key driver of government yield with asymmetric risks in favour of lower yields, supporting an overweight duration stance. On the dollar, it said there maybe short-term support from geopolitical tensions, lower rate-cut expectations, and higher oil prices but longer-term structural pressures persist.
“Crises rarely create new trends”
Despite the conflict in the Middle East and energy disruption, Julius Baer notes that economic damage has been limited while strong investment in multiple areas is supporting growth.
“Crises rarely create new trends; they accelerate existing ones,” the bank added. “We see the Iran war less as a shock than a catalyst for a capex cycle already underway. Defence, energy, AI, and supply chains are now competing for capital, turning yesterday’s savings ‘glut’ into today’s savings ‘grab’.”
