TechFlowPost published a TideResearch reading of J.P. Morgan Wealth Management’s 2026 mid-year outlook, a report issued on June 1 for high-net-worth clients considering how to allocate assets in the second half of the year. The report is framed around two dominant forces: trade friction and the AI cycle. It was written against a backdrop of the Strait of Hormuz blockade pushing oil prices sharply higher, inflation reaccelerating, and the AI narrative moving from enthusiasm to skepticism. TideResearch author David describes the bank’s overall tone as cautiously constructive, with a clear message that investors should not simply hold the same mix of assets as before.
AI capital spending remains the central pillar
J.P. Morgan argues that Wall Street has become too pessimistic about the AI supercycle. The core evidence is the continued upward revision in capital expenditure by the five major hyperscalers: Microsoft, Meta, Oracle, Google and Amazon. Their combined 2026 capex expectation is above $650 billion, up another $130 billion from the previous earnings season. AI-related investment contributed 25 basis points to real U.S. GDP growth in 2025. Taiwan’s GDP growth exceeded 7%, the fastest pace since 2010, with semiconductor exports identified as the main driver.
The report also notes that cloud rental prices for GPUs, the key chips used to train AI models, have risen 40% since last October, while supply still has not caught up with demand. Nvidia’s stock is trading at a 40% discount to its average price-to-earnings multiple over the past decade. J.P. Morgan’s point is not that AI valuations are universally cheap, but that the market has been pricing in a “chip sales peak” while cloud revenue continues to accelerate.
At the same time, J.P. Morgan acknowledges that the financial profile of the hyperscalers is changing. Free cash flow for the five companies is projected to fall from $240 billion in 2024 to $73 billion by the end of 2026. Microsoft’s forward P/E has dropped from an AI-era peak of 35 times to 22.5 times. The asset-light, high-return model that attracted investors over the past decade is being rewritten by heavy capital spending. J.P. Morgan says revenue growth matters more than cash flow at this stage, but it also warns that if demand slows, today’s investment burden could become a drag.
SaaS is already feeling the pressure
The report identifies traditional software companies as among the first real casualties of AI adoption. About half of the constituents in the S&P software index IGV have fallen more than 50% from their historical highs. J.P. Morgan’s basket of “AI-vulnerable” names is down nearly 20% this year, and the median operating margin in the U.S. software sector is only 4%. The business logic is straightforward: subscription software charges by headcount, while AI reduces headcount needs.
This pressure has already reached credit markets. Roughly 21% of exposure in the U.S. direct lending market is to software companies; when technology and business services are included, the share rises to 40%. Publicly traded technology loan funds are priced close to the lows of the previous cycle. J.P. Morgan’s stress test shows that in an extreme scenario, leveraged losses could reach 4%, though the bank does not currently view this as a systemic risk.
The report also places possible listings by SpaceX, Anthropic and OpenAI this year in a historical context. J.P. Morgan does not state that such listings would mark the top of the cycle, but it treats the market’s reaction to a SpaceX IPO as a temperature gauge. After the 25 largest IPOs in history, the median new stock underperformed the broader market by 30 percentage points in its first year, and 12 of 18 fell in the first year. In years that featured mega-IPOs, the broader market’s median annual return was only 3%, far below the long-term average of 10%.
Inflation is not back to the old 2% world
In the inflation section, the report’s main argument is that the problem did not begin with the Hormuz-driven oil shock. Before oil prices surged, U.S. inflation had already failed to return to normal levels. Core PCE was 3.1% year over year in January 2026, with local services such as dining and personal care still showing firm price increases. Then oil nearly doubled. According to the Federal Reserve’s model cited in the report, every $10 increase in the price of a barrel of oil lifts inflation by about 0.3 percentage point; this time the increase was about $40.
J.P. Morgan does not expect a full replay of the 1970s. The labor market has not produced a wage-price spiral, the quit rate is falling, housing inflation has declined from 5% at the end of 2024 to just above 3%, and China’s excess capacity is putting downward pressure on global goods prices. But the bank’s key conclusion is that the inflation floor is higher than it was before the pandemic and is likely to hover around 3%.
That conclusion drives the portfolio recommendation. Since 2020, U.S. consumer prices have risen 25%, while core fixed income has returned only 6%, and cash has earned even less. Nearly 20% of J.P. Morgan clients’ assets are still in cash and short-term bonds. The report argues that what looks like safety is in fact a slow loss of purchasing power. It recommends moving part of the portfolio into assets linked to inflation, including commodities, infrastructure and real estate, with a combined allocation of around 5%. Gold receives a separate recommended allocation of 3% to 6%.
Alternative strategies are also part of the suggested response. In 2022, when stocks and bonds both declined, macro hedge funds returned 9%. J.P. Morgan also notes an implementation gap among its own clients: 94% of its private banking clients have never bought hedge funds, and 86% have never bought infrastructure products. TideResearch summarizes this section as a warning that a traditional 60/40 stock-bond portfolio plus a large cash pile is built for a world that no longer exists.
Hormuz, U.S.-China fragmentation and emerging market opportunities
The geopolitical section ranges from the Middle East to U.S.-China competition and Europe’s structural difficulties. The Strait of Hormuz blockade is described as the biggest oil supply shock since World War II. About 20 million barrels of oil pass through the channel each day, equal to one fifth of global oil consumption. After joint U.S.-Israeli strikes on Iran, oil prices nearly doubled within days, while European natural gas prices rose almost 100% in two days.
The report also cites the Qatar Energy CEO as saying that 15% of LNG capacity could be offline for as long as five years. Qatar supplies about 30% of the world’s helium, which is needed in chip manufacturing, and South Korea has already warned about the risk of chip factory shutdowns. J.P. Morgan says the conflict is moving toward de-escalation, but physical infrastructure damage and the energy risk premium will not disappear quickly.
Despite that shock, the bank’s market framework is to buy U.S. equities on weakness. U.S. stocks fell about 10% in the first half, and the S&P 500 P/E briefly dropped below 20 times. J.P. Morgan’s historical data show that buying after the VIX breaks above 30 has delivered positive six-month returns 70% to 83% of the time, with an average return of 12.4%.
On U.S.-China relations, the report says the two economies are building separate ecosystems. The United States is restricting chip exports to China and working with the Netherlands and Japan to limit semiconductor equipment access. China is expanding exports to non-U.S. markets. Belt and Road investment reached a record high in 2025, China invested $53 billion in Brazil in one year, and its total trade with Latin America has already surpassed that of the United States. J.P. Morgan’s conclusion is that future investment returns may increasingly depend on which ecosystem an asset belongs to, not only on the company’s own growth.
Fragmentation is also creating opportunities, particularly in emerging markets. EM corporate earnings are expected to grow 46%, while the P/E is only 11.8 times. Taiwan and South Korea sit at key points in the AI hardware supply chain. Latin America holds more than 40% of global copper reserves and nearly 60% of lithium reserves, along with nickel, rare earths and agricultural resources. Foreign direct investment into the region has doubled over the past two decades, and the report says its central banks have controlled inflation better than developed-market peers. Gulf countries are using oil revenue to build AI data centers, including a $3 billion Saudi data center project with Blackstone, with costs 30% lower than in the United States.
China is treated with a warmer but still cautious tone. Chinese equities are trading at their deepest discount to the rest of Asia in 20 years. Eighty percent of Chinese consumers say they are excited about AI products, compared with 38% in the United States, and China’s electricity costs are about half those of the U.S. TideResearch characterizes J.P. Morgan’s stance as “cautiously warming”: if policy delivers clearer pro-business signals, Chinese equities could enter a structural re-rating phase.
What J.P. Morgan favors and avoids
Europe is the market where J.P. Morgan is most conservative. Electricity prices are two to four times those in the United States. R&D spending is only 2.2% of GDP, compared with 3.6% in the U.S. and 5.2% in South Korea. Europe’s venture capital market is one tenth the size of the U.S. market. The energy shock is also putting renewed rate-hike pressure on the European Central Bank. In Europe, J.P. Morgan recommends only defense and infrastructure-related names, while avoiding autos and consumer sectors.
TideResearch reduces the 60-page report to one line: volatility is an entry opportunity, but the method of entering has changed. The favored areas are AI infrastructure chains, including chips, optical modules and power; emerging market equities and bonds; real assets such as commodities, infrastructure and gold; defense-related assets; and cautious additions to China AI themes. The unfavored areas are cash, traditional subscription software companies, European autos and consumption, and relying solely on a classic 60/40 stock-bond allocation for the second half of the year.
The article states that it is TideResearch’s compilation and interpretation of J.P. Morgan Wealth Management’s Mid-Year Outlook 2026. The views and recommendations cited are J.P. Morgan’s views and do not represent TideResearch’s position or constitute investment advice. TideResearch also notes that sell-side reports naturally tend to be constructive, and J.P. Morgan provides investment banking services to several companies mentioned. The value of the report, in TideResearch’s framing, lies in its data and analytical structure rather than in any single directional conclusion. Data sources listed include J.P. Morgan Wealth Management Mid-Year Outlook 2026, Bloomberg, FactSet, the U.S. Bureau of Labor Statistics, IEA, METR and Renaissance Capital.