Oil Trip. The market’s nonchalance over escalations in Iran came to an abrupt end on Thursday, as oil prices settled above $100 a barrel for the first time in two months. Ongoing jitters about hyperscalers spending too much on the AI buildout weren’t helping matters, and the combination of those factors wiped out hundreds of billions of dollars in market cap.

The Nasdaq Composite sank 2.1%. The Dow Jones Industrial Average fell 507 points, or 1%. The S&P 500 dropped 1.2%.

Oil prices surged after Iranian-backed Houthis said they attacked Saudi Arabian tankers in the Red Sea, threatening one of the few alternative shipping routes to the Strait of Hormuz.

Saudi Arabia has been shifting its crude exports to Yanbu, its Red Sea terminal, to avoid Iran’s stranglehold on the Strait of Hormuz. By June, 98.6% of Saudi barrels were shipping from Yanbu, according to Wood Mackenzie data. The problem is that Yanbu has its own chokepoint: the Bab al-Mandeb Strait, says Ian Solis, data analyst, tech/maritime-ops for Wood Mackenzie.

“If Bab al-Mandeb comes under sustained disruption from a declared Houthi naval blockade, Asia stands to lose a major crude supply artery,” he adds. “What looked like diversification was in reality a shift from one strategic bottleneck to another.”

The risk is that global inflation worsens if both Hormuz and the Red Sea are off limits. That could prompt central bankers to become more hawkish—a fear that was top of mind for investors Thursday.

“Basically, we are back to risk off,” writes 22V Research’s Dennis DeBusschere. “Strong Fundamental readings from companies will be overshadowed by financial conditions tightening risk increasing.”

Another tech selloff made matters worse. Shares of Alphabet and Tesla fell 7.1% and 14.5%, respectively, after their earnings reports rekindled concerns about companies spending too much on AI. Both recorded their largest one-day market cap loss ever: Tesla lost $214.5 billion, while Alphabet lost $293.8 billion, marking the sixth-largest one-day market cap loss for any U.S. company on record, according to Dow Jones Market Data.

Collectively, Magnificent Seven stocks wiped out $889.3 billion in value today. Geopolitical jitters are part of it. But as the past few weeks have shown, investors are growing more discerning about ambitious capex plans. Alphabet, for instance, saw free cash flow turn negative in the second quarter for the first time in company history.

“That’s unsettling some investors because it highlights one of Wall Street’s biggest debates about hyperscalers: Is the AI spending worth it if Big Tech companies begin outspending their operating cash flows to fund those ambitions?” write my colleagues Kit Norton and Janet Cho. “On Thursday, the answer was no.”

The Hot Stock: Lockheed Martin +10.5%
The Biggest Loser: Tesla -14.5%

Best Sector: Industrials +1.8%
Worst Sector: Communication Services -5.2%

The stock market isn’t the only thing benefiting from the AI buildout (today’s performance notwithstanding). The massive industrial cycle sparked by nations trying to secure supply chains is bolstering demand for building materials, construction equipment, commodities, engineering services, and industrial components needed to build new factories or repurpose existing ones.

Steve Chiavarone, deputy chief investment officer at Federated Hermes, told my colleague Reshma Kapadia that this infrastructure buildout is the biggest since the 19th century railroad expansion. To wit, both the public and private sector are shelling out cash. It seems as if every country—from the U.S. and EU to India and Japan—is pledging billions, if not trillions of dollars to bolster national security, and a big chunk of change is going to industrials.

That presents a huge opportunity for investors, who are starting to take note. Reshma writes:

To read all about the countries, companies, and funds that could benefit from the industrials boom, you can read this week’s cover story here. And for more on how companies themselves are adapting to geopolitical turmoil, be sure to check out this week’s issue of Barron’s Global Signals here.

American Express Co, Charter Communications, Hartford Insurance Group, NextEra Energy, SLB, and Verizon Communications report earnings tomorrow.

The Census Bureau will report new home sales for June, after a downbeat surprise for existing-home sales. That metric dropped unexpectedly month over month, the National Association of Realtors said earlierthis month. Existing-home prices hit a record high and mortgage rates remain elevated, creating serious obstacles for home buyers.

—Teresa Rivas

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