As the month of May drew to a close, Wall Street sat at record highs—a milestone that captures the convergence of several forces shaping the present moment. Two of those forces stand out: the fragile diplomacy unfolding between the United States and Iran, and the extraordinary, increasingly self-reinforcing momentum of the artificial intelligence trade. Both carry real consequences for inflation, for corporate earnings, and for how investors should think about the years ahead.
The Geopolitical Backdrop and Its Inflation Stakes
Reports have circulated suggesting that the United States and Iran are poised to enter a 60-day window in which a ceasefire would be extended. The headlines first surfaced through a single outlet but were soon echoed by multiple other sources, lending them a weight that earlier, more speculative versions lacked. Markets, for their part, appear to be pricing in the assumption that a deal will eventually be reached.
Yet skepticism is warranted, and it is hard-earned. We have stood at this exact threshold many times before, only to watch negotiations circle back to the same unresolved positions. The genuine difficulty lies in reading the motivations of the parties involved—who ultimately holds the authority to strike a deal on Iran's behalf, and what terms would prove acceptable to the White House. Much depends on the substance rather than the announcement. If an agreement truly delivers forward progress on nuclear materials and reopens the Strait of Hormuz—and reopens it sooner rather than later, not merely "over time"—then it would meaningfully relieve pressure on the longer-term forces that threaten both inflation and broader economic stability. Without concrete information on those parameters, however, the prudent posture is to root for a resolution while withholding confidence until one actually materializes. Anything short of that risks being little more than kicking the can down the road.
Earnings Strength and the AI Engine
If geopolitics supplies the uncertainty, corporate earnings supply the conviction. Earnings have been strong, and artificial intelligence has firmly retaken the driver's seat as the engine of market momentum. The central question is how much of the optimism surrounding AI's growth is already priced into equities—and recent results suggest the answer is more nuanced than a simple "all of it."
Consider the reports from Micron and Dell. What stood out was not merely that these companies posted strong current numbers, but that they raised expected earnings for the out years—projections that genuinely surprised the expectations already built into their valuations. That forward-looking surprise, rather than any backward-looking beat, is what has driven their stock prices higher. Micron's climb toward a trillion-dollar market capitalization underscores how dramatically this dynamic can reshape a company's standing, and indeed how it is reshaping entire industries.
The critical issue is sustainability. Most of these companies are signaling that the demand is real and durable, extending out through 2029, 2030, and beyond. They are not merely talking; they are building, and continuing to build, capacity on the conviction that demand will be there to meet it. If that holds, it augurs well for the market's continued ability to support these valuations.
None of this means the path will be smooth. There has been considerable discussion of token-maximizing behavior and the cost of tokens, and it is reasonable to expect a period of experimentation as companies test different pricing models for a still-young technology. Adjusting to any genuinely new technology produces a great deal of back-and-forth before equilibrium settles in. But looking down the road, the underlying technology appears both useful and sustainable—and that fundamental usefulness is what ultimately justifies the investment.
Where the Winners Are: The Picks and Shovels
When AI proliferates, attention naturally gravitates toward the marquee names and the most visible, immediate benefits. The more durable opportunity, however, lies further upstream—in the providers of the technology that makes compute possible at all. These are the proverbial picks and shovels of the AI gold rush, and concretely they are the semiconductor supply chain.
The logic is straightforward. AI requires compute, and compute requires semiconductors—chips that grow only more complex and more powerful with each generation. But the visible chip is just the surface. Behind it sits an enormous apparatus required to design and manufacture it. The companies with genuine competitive advantage in that apparatus are those carrying huge investments in capital equipment and possessing the financial capacity to keep making large capital-expenditure commitments. When a company holds a capability so distinctive that the rest of the market must come to it—must use its technology because no substitute exists—that is the most valuable position to occupy. The market's dependence becomes the moat.
Conclusion
The present record-setting environment rests on a combination of hope and substance. On the geopolitical side, hope dominates, and it deserves the discipline of skepticism until a deal proves real on the terms that actually matter. On the technology side, however, the evidence is more tangible: companies are raising forward expectations, committing capital, and building toward demand they believe will persist for years. The wisest place to stand amid this transformation is not necessarily among the most familiar names, but among the indispensable suppliers of the underlying capability—the firms whose technology everyone else is compelled to use.