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May Outlook: AI Fundamentals Overpower Geopolitics
Price Action vs. Geopolitical Fears
For weeks, Wall Street was obsessed with each and every headline out of the conflict in the Middle East between the United States and Iran. All it took was just one negative headline or escalation to send the Nasdaq lower by more than 1% and oil surging by more than 5%.
Currently, the strategically important Strait of Hormuz (which is vital to the energy trade) remains in a standstill due to a U.S. naval blockade, ensuring that crude oil prices remain elevated (crude oil is currently trading above $100). Until April, U.S. stocks fell whenever crude oil prices rose.
However, over the past few weeks, an important change has occurred. U.S. stocks are decoupling from oil spikes and are no longer as reactive. To savvy market watchers, this change is critical and suggests that investors are refocusing on the economy’s fundamentals (which I will discuss later) and not geopolitics. The current price action mirrors historical geopolitical events. According to the data, geopolitical shocks tend to have a short-term impact on equity markets.
AI CAPEX Spending is Snowballing
Last week marked the busiest week of earnings season and included reports from “Mag 7” tech giants such as Meta Platforms, Amazon and Alphabet. Although the initial reaction to earnings from Mag 7 stocks was mixed, capital expenditure (CAPEX) spending plans from big tech hyperscalers are far from slowing and was the true story. In fact, CAPEX spending is expected to soar from under $500 billion in 2025 to $646 billion in 2026 and a staggering $1 trillion or more in 2027!
Hyperscaler capex in 2026 will represent a staggering 2% of GDP in 2026 and is roughly the same size as the market cap of the stock markets in Belgium, Denmark, and Indonesia. In Q1, AI was already 75% of GDP growth. That trend is likely to continue. Meanwhile, hyperscaler spending is driving unfathomable demand for AI infrastructure. For instance, Microsoft recently paid ‘neocloud’ provider Nebius Group 40% of a multi-year contract upfront.
Don’t ‘Sell in May & Go Away’
Although the old Wall Street adage that warns investors to “Sell in May and go away” is catchy, historical data disproves it. According to Bluekurtic Market Insights (@Bluekurtic): “Since 1950, the S&P 500 has peaked for the year in May less than 3% of the time. Only 2 of the last 76 years saw SPX make its high in May: 1969 and 2015. Even better, the index has never peaked for the year in June either. Never.”
Bottom Line
While the headlines may remain focused on naval blockades and energy costs, the underlying market fundamentals and price action tell a far more optimistic story. The sheer scale of AI infrastructure demand- highlighted by massive upfront contracts and historic CAPEX plans- is providing a fundamental floor that geopolitics simply can’t crack.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Meta Platforms, Amazon, Alphabet, Microsoft and Nebius
For Immediate Release
Chicago, IL – May 5, 2026 – Today, Zacks Investment Ideas feature highlights Meta Platforms (META - Free Report) , Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) and Nebius Group (NBIS - Free Report) .
May Outlook: AI Fundamentals Overpower Geopolitics
Price Action vs. Geopolitical Fears
For weeks, Wall Street was obsessed with each and every headline out of the conflict in the Middle East between the United States and Iran. All it took was just one negative headline or escalation to send the Nasdaq lower by more than 1% and oil surging by more than 5%.
Currently, the strategically important Strait of Hormuz (which is vital to the energy trade) remains in a standstill due to a U.S. naval blockade, ensuring that crude oil prices remain elevated (crude oil is currently trading above $100). Until April, U.S. stocks fell whenever crude oil prices rose.
However, over the past few weeks, an important change has occurred. U.S. stocks are decoupling from oil spikes and are no longer as reactive. To savvy market watchers, this change is critical and suggests that investors are refocusing on the economy’s fundamentals (which I will discuss later) and not geopolitics. The current price action mirrors historical geopolitical events. According to the data, geopolitical shocks tend to have a short-term impact on equity markets.
AI CAPEX Spending is Snowballing
Last week marked the busiest week of earnings season and included reports from “Mag 7” tech giants such as Meta Platforms, Amazon and Alphabet. Although the initial reaction to earnings from Mag 7 stocks was mixed, capital expenditure (CAPEX) spending plans from big tech hyperscalers are far from slowing and was the true story. In fact, CAPEX spending is expected to soar from under $500 billion in 2025 to $646 billion in 2026 and a staggering $1 trillion or more in 2027!
Hyperscaler capex in 2026 will represent a staggering 2% of GDP in 2026 and is roughly the same size as the market cap of the stock markets in Belgium, Denmark, and Indonesia. In Q1, AI was already 75% of GDP growth. That trend is likely to continue. Meanwhile, hyperscaler spending is driving unfathomable demand for AI infrastructure. For instance, Microsoft recently paid ‘neocloud’ provider Nebius Group 40% of a multi-year contract upfront.
Don’t ‘Sell in May & Go Away’
Although the old Wall Street adage that warns investors to “Sell in May and go away” is catchy, historical data disproves it. According to Bluekurtic Market Insights (@Bluekurtic): “Since 1950, the S&P 500 has peaked for the year in May less than 3% of the time. Only 2 of the last 76 years saw SPX make its high in May: 1969 and 2015. Even better, the index has never peaked for the year in June either. Never.”
Bottom Line
While the headlines may remain focused on naval blockades and energy costs, the underlying market fundamentals and price action tell a far more optimistic story. The sheer scale of AI infrastructure demand- highlighted by massive upfront contracts and historic CAPEX plans- is providing a fundamental floor that geopolitics simply can’t crack.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.7% average gain per year. Amazingly, they soared with average gains of +48.4%, +50.2% and +56.7% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.