J.P. Morgan Wealth Management released its 2026 mid-year outlook on June 1, laying out how it believes high-net-worth clients should think about asset allocation for the second half of the year. The TechFlowPost article, based on TideResearch’s edited reading of the report, frames the document around two dominant themes: trade and geopolitical fragmentation on one side, and the AI supercycle on the other.
The setting is tense. The closure of the Strait of Hormuz has driven oil prices higher, inflation has re-emerged as a portfolio problem, and the market narrative around artificial intelligence has shifted from enthusiasm toward skepticism. Even so, J.P. Morgan’s overall tone is cautiously optimistic. It argues that three major global risks — fragmentation, inflation and AI disruption — have been priced too pessimistically by markets, and that volatility has created an entry point rather than a reason to retreat.
The report’s broad message is to keep exposure to the AI supercycle and U.S. equities, hedge inflation through real assets and alternative strategies, reduce cash holdings, and pay closer attention to emerging markets. TideResearch stresses that the article is an interpretation of J.P. Morgan Wealth Management’s 2026 mid-year outlook. The views and recommendations cited are JPM’s own, do not represent TideResearch’s position, and are not investment advice.
AI spending remains large, but hyperscaler finances are changing
JPM’s first major conclusion is that the AI supercycle has not ended and that Wall Street has become too negative on the theme. The five major hyperscalers — Microsoft, Meta, Oracle, Google and Amazon — are expected to spend more than $650 billion in capital expenditure in 2026. That figure was revised upward by another $130 billion from the previous earnings season. AI-related investment contributed 25 basis points to U.S. real GDP growth in 2025, while Taiwan’s GDP growth exceeded 7%, the fastest pace since 2010, with semiconductor exports as the key driver.
JPM also points to supply-demand pressure in AI infrastructure. Cloud rental prices for GPUs, the core chips used to train AI models, have risen 40% since last October, while supply still cannot keep up with demand. Nvidia’s stock trades at a 40% discount to its average price-to-earnings ratio over the past decade. In JPM’s view, the market is pricing Nvidia as though chip sales have peaked, even as cloud revenue is still accelerating.
At the same time, the report makes clear that hyperscalers no longer look like the same light-asset businesses that dominated the previous decade. Free cash flow for the group is expected 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 high of 35 times to 22.5 times. JPM argues that investors should focus more on revenue growth than cash flow at this stage, but it also notes the other side of the trade: if demand slows, the large capital commitments can become a drag.
Traditional software companies are described as the first real casualties of AI. Around half of the constituents in the S&P software index, IGV, have fallen more than 50% from their historical highs. JPM’s basket of AI-vulnerable stocks is down nearly 20% this year, and the median operating margin in the software sector is only 4%. The pressure comes from the SaaS model itself: subscription software often charges by user count, while AI reduces headcount needs.
That stress has already reached credit markets. About 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 have fallen close to lows seen in the previous cycle. JPM’s stress test shows that losses could reach 4% in an extreme leveraged scenario, though the report does not regard this as a systemic risk for now.
The report also treats potential large listings by SpaceX, Anthropic and OpenAI this year as a cycle thermometer. After the 25 largest IPOs in history, the median newly listed stock underperformed the broader market by 30 percentage points in its first year, and 12 of 18 such stocks fell in year one. In years with mega-IPOs, the median annual return of the broader market was only 3%, far below the long-term average of 10%. JPM does not say the AI cycle has peaked, but it explicitly watches the market reaction to a SpaceX listing as an indicator of cycle temperature.
Inflation is not back to 2%, and cash is losing purchasing power
JPM’s inflation argument is not only about the Strait of Hormuz and the oil shock. The more important point is that U.S. inflation had not returned to normal even before energy prices jumped. In January 2026, core PCE was 3.1% year on year, with local service categories such as restaurants and personal care showing firm price increases. Oil prices then doubled. The Federal Reserve’s model shows that every $10 increase in the price of a barrel of oil raises inflation by about 0.3 percentage points; this time, oil rose by $40.
JPM does not expect a full repeat of the 1970s. The labor market has not entered 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 keeping pressure on global goods prices. But JPM’s conclusion is that the inflation floor is higher than before the pandemic and is likely to hover around 3%.
This creates a direct problem for portfolios that rely on cash and traditional fixed income. Since 2020, U.S. consumer prices have risen by a cumulative 25%, while core fixed income has returned only 6%, and cash has earned even less. Nearly 20% of JPM’s client assets are still in cash and short-term bonds. The report’s message is clear: what looks like safety can still produce a loss in real purchasing power.
JPM’s proposed response is to increase allocations to real assets. Commodities, infrastructure and real estate, which have more direct links to inflation, are recommended at around 5% of the portfolio in aggregate. Gold is separately recommended at 3% to 6%. The report also discusses hedge funds: in 2022, when stocks and bonds fell together, macro hedge fund strategies returned 9%. JPM also acknowledges an adoption gap among its own clients: 94% of its private banking clients have never bought hedge funds, and 86% have never bought infrastructure products.
The core takeaway in this section is that inflation may not run out of control, but it is also not returning to 2%. JPM’s view is that a traditional 60/40 stock-bond portfolio with a large cash allocation is designed for a world that no longer exists.
Hormuz, energy shocks and the case for buying U.S. equity weakness
The geopolitical section of the report ranges from Middle East conflict to U.S.-China competition and Europe’s difficulties. The closure of the Strait of Hormuz is described as the largest market shock of the first half of the year. Around 20 million barrels of oil pass through the channel each day, equal to one-fifth of global oil consumption. After the U.S. and Israel jointly struck Iran, oil prices nearly doubled within days, and European natural gas prices rose almost 100% in two days.
The report also cites a warning from QatarEnergy’s CEO that 15% of LNG capacity could be offline for as long as five years. Qatar supplies about 30% of the world’s helium, a required input for chip manufacturing. South Korea has already warned that chip plants could face shutdowns. JPM believes the conflict is moving toward de-escalation, but it does not expect physical damage and the energy risk premium to disappear quickly.
On market pricing, U.S. equities fell by around 10% in the first half of the year, and the S&P 500’s P/E briefly dropped below 20 times. JPM’s historical data show that buying after the VIX rises above 30 has produced positive six-month returns 70% to 83% of the time, with an average return of 12.4%. The report’s recommendation to investors is therefore to add to U.S. equities during the pullback.
JPM also argues that the United States and China are each building separate ecosystems. The U.S. is restricting chip exports to China and working with the Netherlands and Japan to limit access to semiconductor equipment. 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 exceeded that of the United States. JPM’s view is that future investment returns may depend increasingly on which bloc an asset belongs to, not only on the company’s own growth.
Emerging markets, China assets and Europe’s weaker setup
Fragmentation is also creating opportunities in emerging markets. JPM highlights several areas. Latin America holds more than 40% of the world’s copper reserves and nearly 60% of its lithium reserves, along with nickel, rare earths and agricultural resources. Foreign direct investment in the region has doubled over the past two decades. JPM also says its central banks have stronger inflation-control capability than developed markets, while politics is moving toward more practical, pro-business governments.
The Middle East Gulf states are using oil revenue to build AI data centers. Saudi Arabia has partnered with Blackstone on a $3 billion data center project, with costs 30% lower than in the United States. In East Asia, Taiwan and South Korea control key nodes of the AI hardware supply chain. If AI capital expenditure continues to accelerate, the report says these economies’ exports and pricing power will continue to strengthen.
China is treated separately. Chinese equities are trading at their deepest discount to the rest of Asia in 20 years. JPM also notes that 80% of Chinese consumers are excited about AI products, compared with 38% in the United States, and that China’s electricity costs are about half of U.S. levels. The report describes JPM’s stance toward China as cautiously warming. If policy sends clearer pro-business signals, JPM says Chinese equities could undergo a structural re-rating.
Europe receives JPM’s most conservative assessment. Electricity prices are two to four times those in the United States. Research and development spending is only 2.2% of GDP, compared with 3.6% in the United States and 5.2% in South Korea. Venture capital scale is one-tenth of the U.S. level. The energy shock also puts the European Central Bank in a position where it may have to raise rates again. JPM recommends only defense and infrastructure-related exposure in Europe, while avoiding autos and consumer sectors.
Condensed into a portfolio map, JPM favors the AI infrastructure chain, including chips, optical modules and electricity; emerging-market stocks and bonds; real assets such as commodities, infrastructure and gold; defense-related assets; and cautious additions to China AI concepts. It does not favor cash, traditional subscription software companies, European autos and consumer stocks, or a simple 60/40 stock-bond model as the primary strategy for the second half of the year.
TideResearch closes with a caution: sell-side reports naturally lean bullish, and JPM is also an investment banking service provider to several companies mentioned in the report. The value of the report lies in its framework and data rather than in any single conclusion. The 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.