J.P. Morgan Wealth Management released its 2026 mid-year outlook on June 1, giving high-net-worth clients a framework for asset allocation in the second half of the year. In TechFlowPost’s article, TideResearch reorganized and interpreted the report around two central themes: trade friction and artificial intelligence. The backdrop is a complicated one: the Strait of Hormuz blockade has pushed oil prices sharply higher, inflation has reaccelerated, and the AI narrative has shifted from euphoria toward skepticism. Even so, the report’s tone is described as cautiously optimistic, with the main change lying not in whether to invest, but in how portfolios should be positioned.
The overall message is that J.P. Morgan views three global risks — fragmentation, inflation and AI disruption — as being priced too pessimistically by markets. From that perspective, current volatility is treated as an entry point rather than a reason to retreat. The report’s core allocation view is to continue backing the AI supercycle and U.S. equities, hedge inflation through real assets and alternative strategies, reduce cash holdings, and pay attention to emerging markets. TideResearch distilled the report into six key conclusions: the AI supercycle is not over; the financial profile of hyperscalers is changing; SaaS companies are facing a harsh adjustment under the surface; inflation’s floor is higher than before the pandemic, meaning cash is slowly losing value; the Hormuz blockade is one of the largest oil-supply shocks since World War II, yet J.P. Morgan recommends buying into declines; and emerging markets could provide opportunities in the second half.
AI capex keeps rising, while software models come under pressure
On AI, J.P. Morgan opens with the view that Wall Street has become too pessimistic about the supercycle. The five major cloud hyperscalers — Microsoft, Meta, Oracle, Google and Amazon — are expected to spend more than $650 billion in capital expenditure in 2026, a figure that has been raised by another $130 billion since the prior earnings season. AI-related investment contributed 25 basis points to U.S. real GDP growth in 2025. Taiwan’s GDP growth exceeded 7%, the fastest pace since 2010, with semiconductor exports serving as the main driver. Cloud rental prices for GPUs, the key chips used to train AI models, have risen 40% since last October, and supply still has not caught up with demand. Nvidia’s shares trade at a 40% discount to their average price-to-earnings multiple over the past decade, suggesting the market is pricing in a peak in chip sales, while cloud revenue continues to accelerate.
J.P. Morgan also stresses that the hyperscalers are no longer being valued purely as light-asset, high-return businesses. Their combined free cash flow is expected to fall from $240 billion in 2024 to $73 billion by the end of 2026. Microsoft’s forward P/E has declined from an AI-era peak of 35 times to 22.5 times. The business model that attracted investors over the past decade is being rewritten by heavy capital investment. J.P. Morgan argues that investors should focus more on revenue growth than cash flow at this stage, but this also means that if demand slows, today’s investment wave would become a drag.
Traditional software companies are described as the first genuine casualties of AI. Around half of the constituents in the S&P software index, IGV, have fallen more than 50% from their historical highs, and the median operating margin is only 4%. J.P. Morgan’s basket of “AI-vulnerable” names has dropped nearly 20% this year. The logic is direct: SaaS businesses charge by seat, while AI reduces the number of seats needed. The stress has already reached lending markets. Roughly 21% of U.S. direct lending exposure is to software companies, and when technology and business services are included, the figure rises to 40%. Publicly traded technology loan funds have fallen to levels close to the lows of the last cycle. J.P. Morgan’s stress test indicates that in an extreme scenario, leveraged losses could reach 4%, although the bank does not view this as a systemic risk for now.
The report also highlights the prospect of major private AI and space companies coming to market. SpaceX, Anthropic and OpenAI are described as names that may cluster into the IPO window this year, and history is not encouraging for such a pattern. 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 out of 18 fell during that first year. In years marked by mega-sized IPOs, the median annual return for the broader market was only 3%, far below the long-term average of 10%. J.P. Morgan does not state that this marks a top, but it does frame the market’s reaction to a SpaceX listing as a temperature gauge for the cycle.
Inflation stays above 2%, forcing a rethink of cash and bonds
The inflation section is not focused only on the oil shock from Hormuz. The deeper point is that U.S. inflation had already failed to normalize before oil prices moved sharply higher. In January 2026, core PCE was up 3.1% year over year, with local services categories such as dining and personal care showing firm price increases. Oil prices then doubled. According to the Federal Reserve’s model cited in the report, every $10 increase in the oil price raises inflation by about 0.3 percentage points, and this move amounted to $40.
J.P. Morgan does not expect a full replay of the 1970s. The labor market has not entered a wage-price spiral, the quits rate is falling, housing inflation has declined from 5% at the end of 2024 to just above 3%, and China’s excess capacity is pressing down on global goods prices. But the report argues that the inflation floor is higher than it was before the pandemic, hovering around 3%. This changes the role of cash and core fixed income. Since 2020, U.S. consumer prices have risen 25%, while core fixed income has returned only 6%, and cash has earned even less. J.P. Morgan clients still hold nearly 20% of their assets in cash and short-term bonds, a position the report frames as a quiet loss of purchasing power.
The proposed response is to raise allocations to real assets. J.P. Morgan recommends that commodities, infrastructure and real estate, which are linked to inflation, together account for around 5% of a portfolio. Gold receives a separate suggested allocation of 3% to 6%. Hedge funds are also included in the discussion. In 2022, when stocks and bonds fell together, macro hedge fund strategies earned 9%. At the same time, the bank acknowledges a large gap between recommendation and client behavior: 94% of its private banking clients have never bought hedge funds, and 86% have never bought infrastructure products.
Hormuz shock, U.S. equity pullback and the case for emerging markets
The geopolitical part of the report covers the Middle East, U.S.-China competition and Europe’s challenges. The Strait of Hormuz blockade is described as the largest market shock in the first half of the year. Around 20 million barrels of oil pass through the route 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 nearly 100% in two days. QatarEnergy’s CEO said 15% of LNG production capacity could be offline for as long as five years. Qatar also supplies about 30% of the world’s helium, a material needed in chip manufacturing, and South Korea has already warned about the risk of semiconductor factory shutdowns. J.P. Morgan believes the conflict is moving toward de-escalation, but damage to physical facilities and the energy risk premium will not disappear quickly.
Against that backdrop, the bank recommends adding to U.S. equities during the pullback. U.S. stocks fell about 10% in the first half, and the S&P 500’s P/E briefly dropped below 20 times. J.P. Morgan’s historical data show that after the VIX rises above 30, buying equities has produced positive returns over the following six months in 70% to 83% of cases, with an average return of 12.4%. This is the practical expression of the report’s cautious optimism: shocks have lowered valuations, but they have not led J.P. Morgan to abandon U.S. equities or the AI infrastructure chain.
On U.S.-China fragmentation, the report describes a world in which two ecosystems are being built in parallel. The United States is restricting chip exports to China and working with the Netherlands and Japan to limit 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 already exceeded that of the United States. J.P. Morgan’s conclusion is that future investment returns may depend increasingly on which camp an asset belongs to, not only on the company’s own growth.
Fragmentation also creates opportunities, especially in emerging markets. Latin America holds more than 40% of the world’s copper reserves and nearly 60% of lithium reserves, along with nickel, rare earths and agricultural resources. Foreign direct investment has doubled over the past two decades, central banks have shown stronger inflation-control capacity than those in developed markets, and politics is moving toward more pragmatic, pro-business governments. Gulf countries in the Middle East are using oil revenue to build AI data centers. Saudi Arabia is working with Blackstone on a $3 billion data center project, with costs 30% lower than in the United States. East Asia, including Taiwan and South Korea, controls key nodes in the AI hardware supply chain. If AI capital spending continues to accelerate, their exports and pricing power will continue to strengthen.
What J.P. Morgan favors — and what it avoids
China is described by TideResearch as an area where J.P. Morgan’s stance is “cautiously warming.” Chinese equities are trading at the deepest discount to other Asian markets in 20 years. Eighty percent of Chinese consumers are excited about AI products, compared with 38% in the United States. China’s electricity cost is about half that of the United States. The report says that if policy delivers clearer pro-business signals, Chinese equities could undergo a structural re-rating. By contrast, Europe is the market where J.P. Morgan is most conservative. 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, and venture capital scale is one-tenth that of the United States. The energy shock is also pushing the European Central Bank back toward rate hikes. In Europe, J.P. Morgan only recommends defense and infrastructure-related names, while avoiding autos and consumer sectors.
Reduced to one sentence, TideResearch says the 60-page report’s message is that volatility is an entry opportunity, but the method of entering the market has changed. The assets J.P. Morgan favors include the AI infrastructure chain — 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 concepts. The assets it avoids include cash, traditional subscription software companies, European autos and consumer names, and a pure 60/40 stock-bond allocation with a large cash buffer as a strategy for the second half. The original article notes that the views and recommendations are J.P. Morgan’s and do not represent TideResearch’s position or constitute investment advice. It also reminds readers that sell-side reports are naturally bullish, and that J.P. Morgan provides investment banking services to several companies mentioned. The value of the report lies in its framework and data rather than in any single conclusion. The cited data sources include J.P. Morgan Wealth Management Mid-Year Outlook 2026, Bloomberg, FactSet, the U.S. Bureau of Labor Statistics, IEA, METR and Renaissance Capital.