AI has made the stock market temporarily "forget" about the Middle East war.
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The Middle East conflict has lasted for over two months, but the AI boom has overshadowed the gloom of war—the market value of the world's largest companies has not decreased but increased, up by more than $5.4 trillion in total.
Since the outbreak of war following the US-Israeli joint attack on Iran, the semiconductor sector’s market value has soared by 26%, an increase of as much as $3.7 trillion, becoming the main engine driving global market cap growth. Shares of chip giants like Intel and TSMC have surged, and combined with strong Q1 earnings from major tech firms, the AI narrative has dominated market trends. Luca Paolini, chief strategist at Pictet Asset Management, said investors are returning to tech stocks in an environment of “extreme macro uncertainty,” seeking the “profit certainty” of the US tech sector, and “after the ceasefire, the market’s focus shifted entirely back to AI.”
In contrast, airlines have cut flights, consumers have reduced spending, and companies have successively issued price hike warnings—the impact of war on the real economy is spreading. Sectors like energy, consumer goods, automobiles, mining, and even defense have all seen declines to varying degrees. The gap between the AI narrative and the reality of war is becoming clear in global stock markets.
The deep logic behind this divergence is: when the market faces macro uncertainty, funds concentrate on assets with higher earnings visibility. AI provides this certainty, while war does not.
AI Narrative Overwhelms War Themes
According to AlphaSense data, in Q1 this year, nearly two-thirds of large-cap companies mentioned AI in their earnings calls—about twice the number of companies discussing the Middle East conflict. This proportion reflects the market’s attention allocation—while war persists, AI is the core variable currently dominating investor thinking.
John Lamb, investment expert at Capital Group, stated: "There is growing evidence that this AI cycle is real. This is not a fleeting bubble, but a real and lasting investment cycle."
Compared historically, the resilience of this rally is especially notable. Public companies with a market cap over $10 billion saw a combined value increase of $5.6 trillion in the ten weeks after the outbreak of war. In comparison, during the Russia-Ukraine conflict, similarly sized companies lost $2.5 trillion during the same period; at the onset of the COVID pandemic, over $9 trillion was wiped out. AI-driven tech stocks are acting as the “shock absorbers” of global equity markets.
Energy Sector: Winners and Losers
Since the outbreak of the war, oil prices have risen about 50%, boosting the overall energy sector, but individual company performance has diverged.
Saudi Aramco’s market value rose by $144 billion during the war period, despite its oilfields and refineries being hit by missile and drone attacks and its main export routes being cut off. For each $1 rise in oil prices, Aramco gains about $1 billion in free cash flow. Norway’s Equinor, with relatively low Middle East exposure, rose 24%, while BP and TotalEnergies were up 14% and 16% respectively; firms with large trading divisions, able to capture market volatility, also stood out.
In contrast, companies impacted by oil and gas production disruptions in the Persian Gulf are in trouble. Both ExxonMobil and Shell face billions of dollars in repair bills related to damaged facilities in Qatar’s Ras Laffan Industrial City. ExxonMobil’s market value has dropped by about 4%, a $28 billion loss since the conflict began.
Consumer, Automobile, and Mining: Multiple Pressures
The closure of the Strait of Hormuz has raised logistics costs and dampened consumer confidence. Procter & Gamble and Kimberly-Clark have both warned of upcoming product price hikes. Luxury groups like LVMH and Hermès are under pressure from shrinking demand; automakers such as Nissan, Toyota, and Stellantis are facing multiple blows from supply chain interruptions, soaring raw material prices (like aluminum), and slumping Middle East market demand.
Volvo Cars CEO Håkan Samuelsson said his biggest worry is declining US consumer confidence: "This puts pressure on the whole economy; people are starting to worry about losing their jobs...so now is not the time to buy a car or anything else."
Mining companies are being hit on two fronts: rising diesel prices are pushing up input costs, while expectations of a potential global economic slowdown are weighing on commodity price outlooks. Agnico Eagle and Zijin Mining, which previously benefited from historic gold price surges, have posted the steepest drops recently.
Defense Stocks: Expected Gains Fall Flat
Despite governments depleting strategic munitions reserves, the market value of major European and American defense companies has generally declined since the outbreak of the Iran war. Analysts believe that this selloff reflects investor doubts about whether the defense industry can quickly ramp up production capacity given current supply chain bottlenecks.
This trend reveals another side of current market logic: Dominated by AI-driven optimism, even sectors directly linked to wartime demand have failed to continuously attract capital. Investment is flowing toward tech firms able to offer predictable earnings growth. War has reshaped the fundamentals of some industries, but compared with the AI cycle, the market impact from these changes has been relatively minor.
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