AI zeal lifts global stocks to new heights despite Middle East jitters

Global equity markets climbed on Tuesday, as relentless enthusiasm for artificial intelligence overpowered lingering geopolitical anxieties. Even as oil prices wavered and diplomatic tensions between Washington and Tehran remained on a knife-edge, investors bet heavily on technology, pushing benchmarks higher on both sides of the Atlantic. The rally was broad, yet beneath a placid surface, sharp rotations and subtle caution signals revealed a market wrestling with the durability of its own optimism.

In New York, the mood was one of restrained ebullition. The Dow Jones Industrial Average eked out a 0.45% gain to a fresh closing high, while the broader S&P 500 also advanced, though the technology-heavy Nasdaq ended virtually unchanged. What stood out was the outperformance of small-cap stocks, as the Russell 2000 surged ahead of its larger peers — a sign that the AI trade is spreading beyond the usual mega-cap suspects. Semiconductor shares, tracked by the Philadelphia SE index, rose solidly, underpinned by strong results from Hewlett Packard Enterprise and a fresh funding commitment from Alphabet. Yet discomfort simmered below: software and services stocks, battered in recent months by fears of AI disruption, slipped into negative territory, and Alphabet’s own shares retreated, hinting at investor unease over the escalating costs of the AI arms race. As one market watcher put it, the surface was muted, but “there is a lot going on under the hood.”

Across the Atlantic, European bourses shared in the uplift. Milan’s FTSE MIB stood out, vaulting to an all-time intraday and closing high, turbocharged by a leap in STMicroelectronics. The pan-European Stoxx 600 closed higher, with Frankfurt’s DAX, Paris’s CAC 40 and London’s FTSE 100 all posting gains. Investors found additional comfort in easing bond yields and a pullback in Brent crude, which fell more than 1% to below $94 a barrel after President Donald Trump said talks with Iran were continuing. The prospect of a diplomatic breakthrough, however tentative, offered a modicum of relief from the geopolitical dread that had gripped markets in recent sessions.

The day’s engine was a renewed burst of AI optimism, catalysed by news that Anthropic, a rival to OpenAI, was moving towards a US stock market listing. This reinforced a narrative that capital is flooding into the sector regardless of near-term valuation concerns. Yet the parallel story of oil and wariness over Middle East risk served as a counterweight. Though equity indices notched records, the caution embedded in the rotation from large-cap software names to smaller, hardware-oriented plays suggested that many investors are hedging against the very exuberance they are riding. With negotiations between Washington and Tehran fragile and oil prices capable of whipsawing, the ground beneath the rally remains anything but solid.