This combination of rising adoption alongside improving efficiency helps explain why total AI spending continues to grow. Even as costs per unit fall, the number of use cases and users is expanding rapidly.
Despite this, markets remain skeptical that current levels of capital expenditure can continue over the longer term. We believe that skepticism may be misplaced. Companies are unlikely to cut spending on a technology that delivers clear efficiency gains.
As a result, semiconductors remain a high-conviction area, with markets potentially underestimating the durability of AI-driven demand
Private Credit Fear vs. Reality
Private credit continues to dominate headlines, but the underlying data tells a more measured story.
Default rates remain relatively low, and the broader U.S. economy remains resilient. Yet many business development companies (BDCs) are trading at discounts that imply significantly higher levels of stress than current fundamentals would suggest.
This disconnect creates opportunity. Publicly traded BDCs benefit from structural advantages, such as the absence of forced selling, which make them more resilient than many investors assume.
At the same time, the valuation reset has extended to the managers themselves. Firms such as Ares and Blue Owl, which previously traded at elevated multiples, now appear far more reasonably valued relative to their long-term earnings potential.
Hedge Fiscal Uncertainty with Gold
While the fiscal outlook had been improving, new spending proposals have reintroduced uncertainty. Higher deficits could place upward pressure on long-term interest rates, which would have broad implications for financial markets. This is one of the key risks we are monitoring closely.
Gold remains a critical hedge in this environment. Importantly, its long-term drivers extend beyond inflation or short-term geopolitical events. Instead, gold is supported by global wealth growth and a gradual shift away from reliance on the U.S. dollar.
Short-term volatility, such as recent selling tied to energy price shocks, does not change this longer-term trend. We continue to view gold as a strategic allocation, particularly on pullbacks.
More broadly, commodity markets are also being shaped by geopolitical developments. In the near term, shifts in the futures curve into backwardation can create additional return drivers for investors, particularly through positive roll yield. However, these dynamics are cyclical and should be understood as part of a broader allocation strategy.
India Remains Long-Term Opportunity Despite Volatility
India continues to offer compelling long-term growth potential, even after a period of underperformance. Structural reforms, favorable demographics and rapid digital adoption remain intact. At the same time, the market is undergoing a period of adjustment, with traditional business models being disrupted and valuations becoming more attractive.
For long-term investors, this combination of structural growth and improved entry points remains compelling.
Bitcoin Enters a More Complex Cycle
Bitcoin’s traditional four-year cycle appears to have shifted, creating a more nuanced near-term outlook. While past cycles were marked by sharp drawdowns following halving events, recent price behavior suggests a more range-bound environment. This may reflect broader institutional participation and lower volatility.
While the near-term outlook is mixed, the long-term case for adoption remains intact. Current levels may represent a more constructive entry point for investors with a longer horizon.
Where to Allocate Now
Following recent volatility, the investment landscape is offering more targeted opportunities, particularly in areas where fundamentals remain intact despite sentiment weakening and valuations pulling back.
For investors, Q2 is less about broad market direction and more about identifying where resets have created more attractive entry points.
- Lean into AI and semiconductors as enterprise demand continues to drive sustained growth.
- Consider adding exposure to BDCs and private credit managers after recent valuation resets.
- Maintain gold as a portfolio hedge against rising fiscal risks and higher long-term rates.
- Look to India for long-term growth as structural trends remain intact despite volatility.
- Approach Bitcoin opportunistically at current levels with a long-term perspective.
To learn more about how our Asset Allocation Committee is building portfolios in the current environment, watch this webinar replay: A Macro Playbook for Market Volatility and Geopolitical Conflict.
