The Australian sharemarket edged higher over a volatile week, with the ASX 200 finishing the week up 0.4%, despite a sharp sell‑off on Friday. Markets were driven by shifting geopolitical headlines, the RBA’s rate hike, and swings in bond yields. The Materials sector (4.3%) was the standout, supported by firmer metals prices and strong mid‑week gains across miners. In contrast, the Energy sector (-7.6%) underperformed, as oil prices reversed on expectations of easing Middle East tensions. Defensive sectors also lagged, with Utilities (-4.5%) and Consumer Staples (-3.6%) weaker amid higher rate and margin pressures. The Health Care sector (-2.9%) remained under pressure, reflecting continued weakness in large‑cap names.
US sharemarkets recorded strong gains over the week, with the S&P 500 rising 2.4% and the NASDAQ surging 4.5% to fresh all‑time highs. Markets were supported by continued momentum in AI‑related stocks and better‑than‑expected earnings results. The Information Technology sector (7.0%) led performance, driven by broad‑based strength across semiconductor and software stocks as confidence in AI investment intensified. In contrast, the Energy sector (-5.3%) underperformed after oil prices declined sharply amid optimism surrounding a potential easing in Middle East tensions. Other sectors posted more moderate returns, with broader participation continuing to underpin the rally in US sharemarkets.
European sharemarkets finished the week marginally higher, with the STOXX Europe 600 edging up 0.3% as Q1 earnings continued to exceed expectations despite a subdued revenue backdrop. The Basic Resources sector (4.5%) outperformed, supported by improving margins and firmer metals prices, while the Technology sector (4.1%) advanced on earnings strength and positive spill‑through from strong US AI results. The Travel & Leisure sector (3.6%) also performed well, aided by cost discipline and resilient demand. In contrast, the Energy sector (-3.5%) underperformed as oil prices retreated on expectations of a potential de‑escalation in Middle East tensions, weighing on energy share prices despite supportive earnings outcomes.
Stock & sector movements
What caught our eye
One chart caught our attention last week. It compares the estimated cost of data centre investment with some of the major infrastructure projects of the past, including the Apollo Program, the US interstate highway system and the railroads.
The comparison is not perfect. Data centres are being built by listed companies, not governments, and it’s tricky to measure the various regimes. What’s clear is the data centre build-out, largely driven by artificial intelligence (AI), has now undoubtedly become an enormous spending cycle.
The chart estimates data centre capital expenditure at roughly US$930 billion over six years, with a planned 2026 run-rate that could push it towards the trillion-dollar mark. That is an extraordinary number. And it sounds right too, based on what we’ve heard from companies recently. Meta alone lifted its capex guidance for 2026 to US$125-145 billion.
The ongoing earnings season has given us insight into what this has meant for companies. FactSet’s latest indicator shows S&P 500 earnings growth for Q1 2026 running at 27.1%, the strongest pace since late 2021. Moreover, despite the massive spending and questions about whether it's wise, the S&P 500 net profit margin reached 14.7%. That’s the highest level recorded by FactSet since they began tracking this figure in 2009. The market is not yet punishing the hyperscalers for spending heavily. It is rewarding them because revenues, cloud demand, advertising strength and AI-linked expectations are still more than offsetting the cost burden.
Something worth noting is that while this new technology spending cycle is definitely filtering through to other areas of the market, think energy, industrials, materials, the benefits are still highly concentrated. The Magnificent 7 group is now expected to deliver earnings growth of 61%, compared with 16% for the other 493 companies. Even after the last few years of stellar performance, it seems the Magnificent 7 have retained their magnificence!
Our view is that this is both exciting and risky. The AI capex cycle looks less like a normal technology upgrade and more like a once-in-a-generation infrastructure race. That creates opportunities across semiconductors, cloud platforms, power equipment, cooling, construction, utilities and energy. It also creates the risk of overbuild, bottlenecks and disappointment if future AI revenues do not justify today’s spending. There is of course the risk of sitting it out, which could prove equally destructive.
As a result, the Investment Committee remains disciplined and selective when investing in this area. Our focus is on identifying where genuine growth is being created, and it is clear this current spending cycle is increasingly centred on AI infrastructure and data centres.
The portfolios hold exposure to a range of companies linked to this theme, including the major hyperscalers such as Amazon, Microsoft and Alphabet, as well as NVIDIA, Caterpillar, GE Vernova and SK Hynix. However, we are also mindful of the risks that come with a rapidly growing investment theme. Diversification remains important, helping clients participate in the long-term opportunity from AI and data centre investment without taking on unnecessary concentration risk.
Markets will face a busy week ahead. In Australia, focus turns to Tuesday night’s Federal Budget, with investors assessing cost‑of‑living support, tax settings and the extent of new spending following the RBA’s recent rate hike. Offshore, US markets will closely watch April inflation data and a Senate vote on the next Federal Reserve Chair, both key to shaping interest‑rate expectations and near‑term market sentiment.