Beneath the AI Narrative: The Fall of the Market Generals
Prashant Rao
The AI boom remains the loudest story in markets—hyperscaler capex announcements, data-center expansions, and the long-term promise of transformative productivity continue to dominate headlines, earnings calls, and investor attention. Beneath that surface, however, a clearer and more pressing dynamic is unfolding: the market’s leadership stocks—the “generals”—are under sustained pressure from geopolitical escalation, severe energy market disruptions, rising inflation risks, and deteriorating risk sentiment. This goes beyond routine tech “digestion”; it’s leadership exhaustion amid real macro and geopolitical headwinds, while AI infrastructure players (the “shovel sellers” of the gold rush) press forward aggressively.
Geopolitical Context: U.S.-Israel-Iran Conflict and Strained Alliances
The conflict, now in its third week since late February U.S.-Israeli strikes, has involved sustained airstrikes targeting Iranian military, naval, energy, and infrastructure sites. No large-scale U.S. ground invasion of Iran has occurred—President Trump has repeatedly stated there are no plans to deploy American troops on the ground in Iran proper, though additional forces (including Marines) have been repositioned regionally, and planning for potential options continues amid proxy flare-ups (e.g., Hezbollah).
In the latest comments (March 20), President Trump indicated the U.S. is “very close” to meeting its objectives and could “end military operations right now,” but emphasized continuing strikes to ensure Iran can “never rebuild” its capabilities and to reopen the Strait of Hormuz. He described the possibility of “winding down” efforts while criticizing NATO allies as “cowards” for refusing to help secure shipping lanes or provide military support. This introduces de-escalation signaling, but no immediate full withdrawal—deployments and operations remain active, and the situation is fluid.
Cooperation among traditional allies has notably reduced. NATO as an organization has avoided direct involvement, limiting itself to enabling support (logistics, missile defense) while refusing collective military action under Article 5. Most NATO members have rebuffed U.S. requests for assistance in securing the Strait or broader operations—only a handful (Canada, Czech Republic, Albania, North Macedonia, Lithuania, Latvia) have issued public statements of support. Major European powers (Germany, France, UK, and others) have expressed reluctance, criticism, or calls for de-escalation, emphasizing diplomacy over military commitment. President Trump has publicly labeled this reticence a “very foolish mistake,” claiming the U.S. no longer needs or desires NATO assistance and warning of consequences for the alliance’s future.
This reflects a broader breakdown in geopolitical cooperation, leaving the U.S. increasingly isolated in sustaining the campaign.
Energy Markets: Strait of Hormuz Severely Disrupted + Export Curtailments
The Strait of Hormuz—normally handling ~20% of global seaborne oil—has seen traffic drop dramatically since early March. Daily transits have fallen to low single digits (or near zero on some days per vessel-tracking data), down sharply from pre-conflict averages of 100–138 vessels per day. While limited movements persist (often Iran-linked, China-affiliated, or permission-based for select nations), overall commercial flows from Gulf producers are heavily curtailed.
Compounding this, major oil-exporting countries in the region have reduced or curtailed production and exports significantly due to shipping constraints, storage limitations, and precautionary measures in a high-risk environment. This has shifted producers toward a more protectionist, self-preservation mode—prioritizing domestic needs, storage buildup, or limited alternative routes (e.g., Saudi/UAE pipelines bypassing the Strait) over maintaining full export volumes.
- Saudi Arabia has cut output by 2–2.5 million barrels per day (mb/d).
- UAE reductions of 500,000–800,000 b/d.
- Kuwait, Iraq, and others have implemented substantial cuts (e.g., Iraq ~2.9 mb/d in some reports).
- Overall, Middle East Gulf countries have reduced total oil production by at least 10 mb/d, with global supply projected down ~8 mb/d in March per IEA estimates.
Iran continues exporting at relatively steady levels (1.5+ mb/d average) via the Strait, often to preferred buyers like China, while restricting others.
- WTI crude is trading around $97–98 per barrel (settling near $97.97 today, up ~2.5% intraday with highs near $98.75).
- Brent crude is in the $110–112 range (up ~3%+ recently, with levels above $110–113 reported in sessions).
Oil prices have repriced higher to reflect prolonged disruption risks—holding elevated, not retreating, even with recent de-escalation rhetoric.
Fixed Income and Currency: Risk Signals Building
- The 10-year U.S. Treasury yield is around 4.25–4.39% (recent data shows ~4.25% as of March 19 close, with intraday movement higher to ~4.39% amid inflation worries from energy and limited Fed easing expectations).
- The U.S. Dollar Index (DXY) is trading near 99.3–99.7 (around 99.56–99.66 in recent ticks), reflecting modest strength typical in uncertain environments.
Rising yields point to bond market concerns over inflation and policy; dollar firmness aligns with safe-haven demand amid geopolitical uncertainty.
Equity Leadership: The Generals Are Falling
The “Magnificent 7” (Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, Tesla) have entered correction territory, down more than 10% from late-2025 peaks in aggregate, with many underperforming the broader S&P 500 so far in 2026 amid macro pressures.
- SoftBank Group (SFTBY) trades around $11.00–11.30 (recent closes near $11.28–11.29), down from earlier 2026 levels and symbolizing leveraged exposure to tech/AI themes getting repriced.
At the same time, the shovel sellers—AI infrastructure players focused on data centers, power grids, semiconductors, and massive capex—are accelerating. Billions continue flowing into builds, partnerships, and supply chains, even as questions about end-demand grow. It’s the classic gold-rush dynamic: while prospectors face headwinds, the infrastructure crowd is rushing to sell as many shovels as possible.
What Comes Next: Shovel Sellers Likely to Lead into the Grand Finale
As the regime shifts—persistent energy disruption (even with de-escalation signaling), rising yields on inflation risks, dollar firmness, and geopolitical isolation—the market’s leadership is rotating. The generals face the heaviest headwinds: higher hurdle rates, elevated power and fab costs from oil shocks, and macro caution compressing valuations.
Meanwhile, think shovel sellers: chips (semis/memory for compute), construction (data-center builds/power infrastructure), copper/aluminum (wiring, cabling, cooling for grids and facilities)—these are accelerating amid structural demand. Hyperscaler capex keeps pouring in ($650B+ projected for 2026), even as end-AI questions linger. In gold-rush terms, when prospectors hesitate, the infrastructure crowd often takes the lead.
Looking ahead, I expect the shovel sellers to outperform and lead stocks as we head into the grand finale of this AI cycle: sustained buildout maintains momentum while broader growth names digest the underneath pressures. This rotation could sharpen if oil stays elevated and yields remain firm—making relative resilience in infra (chips, construction, key commodities) the real edge.
Bottom Line
AI remains the prevailing narrative because it drives momentum, retail interest, and long-term optimism. Underneath, though, markets are grappling with a tangible mix: energy disruption from the Middle East conflict (including Strait choke and regional export/production cuts in self-preservation mode), higher yields on inflation risks, dollar strength in uncertainty, leadership drawdowns—and a visible fraying of traditional alliances, leaving the U.S. more isolated geopolitically.
Recent de-escalation signaling from President Trump introduces some mitigation potential, but ongoing strikes, alliance friction, and supply-side caution keep the risk premium elevated. This combination marks a fall of the market generals—big tech and growth leaders giving ground first—while the AI infrastructure frenzy presses on.
Markets absorb reality ahead of headlines. The AI thesis endures, but the underneath pressures—including geopolitical isolation, energy self-preservation shifts, and bond/currency signals—are real and worth watching closely.