‘Risk-off’ returns and big tech at a crossroads

Summary

Moving Markets Podcast Summary

Episode: ‘Risk-off’ returns and big tech at a crossroads
Date: May 5, 2026
Host: Bernadette (Julius Baer)
Guests: Roman Canciani (Head of Product and Investment Content), Carsten Menker (Head of Next Generation Research)

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Episode Overview

This episode provides a focused update on recent market dynamics amid renewed geopolitical tensions and inflation anxieties, with a particular lens on the Q1 earnings results of major tech "hyperscalers" (Alphabet, Amazon, Meta, Microsoft). The hosts offer sector-specific analysis, discuss implications of shifting sentiment, and share a thematic deep-dive into tech infrastructure and monetization trends.

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Key Discussion Points & Insights

1. Return of ‘Risk-Off’ Sentiment Across Markets

[00:41-01:28]

• Summary:

  • A “fairly dramatic shift in sentiment” due to escalating Middle East tensions led to a “flight to safety.”
  • European equities saw broad-based losses; the STOXX Europe 600 fell 1%, the largest drop in a month.
  • Rate-sensitive sectors like banking and autos were "particularly hard hit," with autos also pressured by new U.S. tariff threats.
  • The Dow dropped more than 5 points (reflecting its cyclical tilt), while the Nasdaq was more resilient.

• Notable Quote:

  • "Yesterday was characterized by a flight to safety. Equities felt the brunt of it, especially in Europe." — Roman [00:52]

2. Fixed Income, Inflation, and Central Bank Outlook

[01:34-02:47]

• Bond Market Reaction:
  • 10-year U.S. Treasury yield jumped to 4.44%.
  • Safe-haven demand balanced against reappraised central bank tightening expectations.
• Inflation Concerns:
  • Oil prices spiked (WTI up 3%, Brent nearly 6%), fueling inflationary fears.
  • Markets now price in at least three further ECB rate hikes this year.
• ECB Policy Debate:
  • ECB survey: Inflation expected at 2.7% in 2026, only easing to target in 2027.
  • Internal division: Some ECB policymakers favor further tightening; others fear recession risks.
• Notable Quote:
  • "Energy price shocks might take longer to filter through the economy this time, but the risk of intensification remains very real." — Roman [02:22]

3. European Manufacturing: Beneath the Headline Strength

[02:47-03:35]

• PMI Data:
  • New orders at fastest pace in 4 years signals expansion at first glance.
  • But growth driven by safety stock accumulation (precautionary buying), not genuine demand.
  • Cost pressures: Significant jump in input prices, deteriorating future output expectations.
• Notable Quote:
  • "It's precautionary buying, not necessarily genuine demand. Future output expectations actually fell in April, signaling waning confidence." — Roman [03:13]

4. Company-Specific Stories & Earnings Season

[03:42-04:30]

• Europe:

  • Umicore up on upgraded guidance.
  • ThyssenKrupp down after steel unit sale talks.
  • Czech CSG sharply lower after short position disclosure.

• US:

  • eBay dipped after a prior jump on GameStop bid.
  • GameStop slipped on its own bid news.
  • BlackBerry gained on QNX business growth.
  • HSBC down 4% in HK on profit miss.

• Notable Point:

  • "Corporate updates continue to drive individual stock movements." — Roman [04:26]

5. Commodities and Currencies

[04:30-05:23]

• Oil:
  • Brent remains above $113; underlying geopolitical risks underpin price levels.
  • Disruptions in the Strait of Hormuz and attacks on infrastructure feed inflation worries.
• Currencies:
  • U.S. dollar strengthened (safe haven).
  • Australian dollar rebounded after RBA rate hike.
  • Japanese yen firmer, with speculation of official intervention.

6. Upcoming Economic Reports

[05:23-05:46]

• Key Data Releases:

  • US: Trade balance, new home sales, job openings, ISM non-manufacturing PMI.
  • Switzerland: Latest inflation numbers.

• Notable Quote:

  • "These indicators will provide further insights into the health of the global economy and potentially influence central bank decisions." — Roman [05:42]

7. "Sell in May and Go Away"?

[05:46-06:23]

• Historical Market Performance:

  • The adage is not supported by data; May and June have generally been good for equities (S&P 500, STOXX 600, and especially the NASDAQ).
  • No historical basis to be especially cautious in May.

• Notable Quote:

  • "Despite the catchy phrase, data shows that May and June tend to be surprisingly good month(s) for equity returns." — Roman [05:56]

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“Big Tech at a Crossroads”: Hyperscaler Earnings Deep Dive

1. Q1 Earnings of Alphabet, Amazon, Meta, Microsoft — High-Level Takeaways

[06:37-07:12]

• Key Themes Identified by Carsten Menker:

  1. AI Demand > Capacity: Demand for AI still outpaces supply.
  2. Component Cost Inflation: Input costs rising sharply.
  3. AI Monetization Underway: AI already positively impacting revenues.

• Notable Quote:

  • "AI demand still outstrips supply. Second, there's component cost inflation. And third, monetization of AI is happening." — Carsten [06:55]

2. AI Demand Outpaces Supply

[07:15-08:07]

• Data Center Strain:
  • Latency increases observed in leading AI models due to capacity shortfall.
  • Ongoing “data center construction boom” with consensus hyperscaler capital expenditures revised upward:
    • $728bn forecast for 2026 (77% YoY growth), $894bn for 2027.
• Notable Moment:
  • Carsten highlights that users “might have noticed that responses sometimes take a bit longer than usual”—a tangible effect of demand on infrastructure. [07:27]

3. Component Cost Inflation & Hardware Scarcity

[08:07-09:04]

• Supplier Pricing Power:
  • All major hardware components (compute chips, memory, power, cooling) have rising prices.
  • Memory prices up 150-170% YoY; some segments >200%.
  • Capital expenditure growth driven by both inflation and capacity expansion.
• Hardware Scarcity:
  • Data center demand is “crowding out” consumers; PC and laptop prices rising in recent weeks.
  • “Either you pay the higher price, or you don’t.” — Carsten [08:54]

4. AI Monetization: Evidence and Implications

[09:04-10:04]

• Top-Line Acceleration:
  • Hyperscaler revenues growing ~20% YoY, fastest in 5 years, and from a much higher base (revenues up 50% since 2021).
  • Monetization is multi-faceted, but right now “higher advertising revenues and increased cloud spending are the most powerful drivers.”
• Notable Quote:
  • "The hyperscalers’ revenue growth has accelerated to around 20% year on year last quarter, the highest in around five years." — Carsten [09:15]

5. Broad Investment Implications

[10:04-10:30]

• Constructive Long-Term View:

  • Julius Baer remains positive on the cloud and AI investment theme: robust earnings support current valuations.
  • Note: “Hardware is leading, software is lagging.”

• Notable Quote:

  • "We reiterate our long held constructive view on the cloud computing and AI theme as the underlying trends remain unchanged driven by the hyperscaler spending spree." — Carsten [10:13]

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Memorable Quotes

• "Yesterday was characterized by a flight to safety. Equities felt the brunt of it, especially in Europe." — Roman [00:52]
• "It's precautionary buying, not necessarily genuine demand." — Roman [03:13]
• "AI demand still outstrips supply. Second, there's component cost inflation. And third, monetization of AI is happening." — Carsten [06:55]
• "Hardware is leading, software is lagging." — Carsten [10:27]

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Conclusion

This episode adeptly situates recent global market turbulence and inflation anxieties within a framework of fast-moving corporate and thematic developments. The ongoing commitment of tech hyperscalers to outsized capital expenditure — despite cost inflation and supply challenges — points to a resilient AI and data infrastructure investment case. Despite short-term macro jitters, structurally positive trends in the tech sector, especially around AI monetization, are viewed as intact.

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Timestamps Index

• [00:41] Market flight to safety recap (Roman)
• [01:34] Bond market, inflation, and central bank policy
• [02:47] European manufacturing PMI explained
• [03:42] Company-specific stock moves during earnings season
• [04:30] Oil prices and commodity context
• [05:04] Currency movements update
• [05:23] Key economic data ahead
• [05:46] “Sell in May” historical returns myth-busting
• [06:37] Carsten on hyperscaler earnings and AI trends
• [07:15] AI-induced hardware strain and capex boom
• [08:07] Supply crunch and component cost inflation
• [09:04] AI monetization and revenue acceleration
• [10:04] Investment implications for cloud and AI

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Useful for those who missed the episode, this summary distills fast-moving macro and tech themes—underlining why both market caution and big tech optimism define the current cross-currents.

Transcript

[A]

Welcome to Julius Baer's Moving Markets podcast on Tuesday 5th May with me, Bernadette and Dareko. I'm looking forward to catching up on the latest financial markets news with the head of Product and investment content, Roman Canciani this morning. And we've had Q1 results from the hyperscalers out. And with demand for data center capacity still outstripping supply, I'm glad that we're going to be joined by our head of Next Generation research, Carsten Menker to look at the story a little more closely. Now though, let's catch up with the latest developments in financial markets. Good morning to you, Roman.

[B]

Good morning, Bernadette.

[A]

We saw a fairly dramatic shift in sentiment yesterday, largely fueled by re escalating tensions in the Middle East. Can you tell us how this played out across different asset classes?

[B]

Absolutely. Well, yesterday was characterized by a flight to safety. Equities felt the brunt of it, especially in Europe. The stocks Europe 600 dropped 1%, its biggest fall in a month. We saw broad based losses about rate sensitive sectors like banking. And also autos were particularly hard hit. Autos suffered additionally because of renewed tariff threats from the U.S. also in the U.S. we saw the Dow, whose composition is biased to more cyclical industries, shedding over 5, although the Nasdaq held up relatively better.

[A]

Okay, so a pretty clear risk off signal, but how did that translate into fixed income markets?

[B]

Bond yields moved upwards. The 10 year treasury yield jumped to around $4.44. This reflects a balancing act between both safe haven demand pushing prices down and crucially, a reassessment of central bank policy. With oil prices spiking, WTI climbed over 3% and Brent nearly 6 inflation worries are resurfacing. Markets are now pricing in at least three further rate hikes from the ECB this year.

[A]

Speaking of the ecb, let's delve deeper into that. Recent surveys suggest inflation expectations are being revised upwards. What's the outlook amidst this geopolitical backdrop?

[B]

Well, According to an ECB survey with professional forecasters, they anticipate inflation averaging 2.7% this year, easing towards the 2% target only in 2020. We recognize that energy price shocks might take longer to filter through the economy this time, but the risk of intensification remains very real. There's internal debate within the ECB too, with some policymakers leaning towards further tightening if inflation proves persistent, while others are wary of triggering a recession.

[A]

Sounds like a tricky balancing act, but why don't we take a look at manufacturing activity in Europe? We received some PMI data yesterday at first glance look very positive, but I understand there's more beneath the surface.

[B]

Exactly. Headline figures showed expansionary territory with new orders growing at the fastest pace in four years. However, a closer look reveals that much of this boost came from companies building up safety stocks of raw materials. Companies are anticipating further price increases and potential supply chain disruptions. Essentially, it's precautionary buying, not necessarily genuine demand. Future output expectations actually fell in April, signaling waning confidence. Costs for manufacturers are soaring too, with input prices jumping significantly.

[A]

So a bit of a mirage perhaps. But are there any interesting company specific stories emerging from all of this?

[B]

Certainly. We saw quite a mix yesterday. Umicore benefited from upgraded guidance, while ThyssenKrupp Post talks regarding the sale of its steel unit, pushing its shares down. On the defense side, Czech CSG experienced a short position disclosure and its stocks dropped heavily. In the US, eBay dropped a little after its jump on Friday on The bid from GameStop, though, GameStop's own share price dipped on the news and BlackBerry got a lift from reports highlighting growth in its QNX business. Finally this morning, HSBC shares are trading down about 4% in Hong Kong after reporting weaker than expected profits. Importantly, earnings season remains in full swing and corporate updates continue to drive individual stock movements right.

[A]

Looking at commodities, Roman oil has obviously been a major focus. Where do things stand now?

[B]

Oil prices remain elevated, hovering above US$113 a barrel for Brent. While they've eased off their peaks somewhat overnight, the underlying tension continues to support prices. Disruptions in the Strait of Hormuz and attacks on oil infrastructure are fueling those concerns. This directly feeds into the inflation narrative we discussed just earlier.

[A]

And are there any notable currency movements worth mentioning?

[B]

Well, the US Dollar strengthened slightly, reflecting its safe haven status. The Australian dollar has recovered somewhat after the RBA raised interest rates overnight as expected. And the Japanese yen is still up versus the US dollar with speculation of possible intervention coming from Japanese authorities.

[A]

So before we wrap up, what data releases should we be paying attention to today?

[B]

Today we'll get the US Trade balance and new home sales figures along with the job openings report and ISM's non manufacturing PMI Switzerland will also release its latest inflation numbers. These indicators will provide further insights into the health of the global economy and potentially influence also central bank decisions.

[A]

And finally, May has begun and there's this seasonal trend that sometimes gets talked about sell in May and go away. Is there any merit to Historically?

[B]

Not really. Despite the catchy phrase, data shows that May and June tend to be surprisingly good Month for equity returns over the last few decades, The S&P 500 and the Stoxx 600 have generally performed well during this period. The NASDAQ in particular has shown a strong tendency to deliver positive returns in May. So history suggests caution isn't necessarily warranted. That's it from me.

[A]

Okay, let's hope that history is a good guide then. Thanks very much for the news update this morning, Roman.

[B]

Thank you very much, Bernadette. Always a pleasure.

[A]

Now it's time to talk to Carsten. Good morning to you.

[C]

Hello, Bernadette. Good morning.

[A]

So, last week, four of the hyperscalers Alphabet, Amazon, Meta and Microsoft reported earnings results on the same day. From your top down thematic perspective, was there anything that surprised you?

[C]

No, not at all. All eyes were indeed on the hyperscalers last week, and they did not disappoint. From my perspective, three things stood out. First, AI demand still outstrips supply. Second, there's component cost inflation. And third, monetization of AI is happening.

[A]

All right then, so why don't we take those things one by one?

[C]

Okay. First, as I said, AI demand is outstripping supply. And, well, this is very simply illustrated by the fact that latency across the leading models has increased. Listeners might have noticed that responses sometimes take a bit longer than usual. This is due to the insufficient capacity. And the consequence of that is that the data center construction boom will continue unabated. As a result, consensus estimates of hyperscalers capital expenditures have shifted higher again to US$728 billion for 2026. That's 77% more than last year and 894 billion for 2027. Okay, and then your second point, cost, component inflation. So no matter if it's compute chips, memory chips, power systems, or cooling systems, the pricing power is firmly in the hands of the suppliers. Memory prices, as a case in point, are up between 150% and 170% since last year, with some specific segments surging more than 200%. So the expected increase in capital expenditures reflects a mix of component cost inflation and genuine capacity growth.

[A]

All right, let's stay with that for a moment. Do we have hardware scarcity then?

[C]

Yeah, to a certain degree. So clearly the demand from data centers is crowding out other buyers, most notably consumers looking to upgrade their home information technology equipment. PCs and laptops have become more expensive during the past few weeks, and either you pay the higher price or you don't.

[A]

So lastly then, AI monetization. That's the most interesting one, isn't it?

[C]

Well, all of them are interesting, I would say, but this may be the most relevant one longer term, as it determines if all the capital spending will yield a return. And the good news is monetization is happening. So the hyperscalers revenue growth has accelerated to around 20% year on year last quarter, which is the highest in around five years. And this number is becoming even more impressive considering that the group's revenues today are 50% higher than what they were in 2021. As outlined before, monetization happens via various channels and there is no single metric to look at. And according to the quarterly reports, higher advertising revenues and increased cloud spending are the most powerful drivers of AI monetization at the moment.

[A]

All right then. Overall this sounds like a very positive take on the hyperscaler's results.

[C]

Absolutely. From our point of view. We reiterate our long held constructive view on the cloud computing and AI theme as the underlying trends remain unchanged driven by the hyperscaler spending spree. The earnings growth remains very robust and this is keeping valuations in check. Hardware is leading, software is lagging.

[A]

Okay, thank you very much for the update today, Carsten.

[C]

Thanks for having me.

[A]

Well, that's it for today's podcast. Thank you for listening and of course thanks to Roman and Carsten for being with me today. Please do tune in again tomorrow when Helen will be back and she'll be joined by more of our experts to bring you up to speed on what's moving markets. So don't miss that. Meanwhile, good luck today and goodbye for now.

[D]

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