Following the July correction, particularly in technology and semiconductors, markets rebounded during August. Nvidia’s results confirmed the continued strength of artificial-intelligence demand and revived interest in semiconductors, memory and computing infrastructure.
This rebound partly confirms our assessment from last month: the summer decline was primarily a deleveraging and positioning event rather than a challenge to the underlying AI investment cycle. Hyperscaler spending remains substantial and earnings growth is still resilient.
However, the rebound has also materially reduced the margin of safety created by the July correction. Markets have quickly returned to a more complacent environment, even as macroeconomic, political and geopolitical risks continue to build.
In other words, the immediate risk is not necessarily an outright decline, but rather a market that has become highly sensitive to any negative surprise.
The first risk remains the bond market. At Jackson Hole, Kevin Warsh delivered a materially more hawkish message than investors had hoped for. He stressed that inflation is not slowing sufficiently, that financial conditions remain difficult to describe as restrictive and that the Fed still has “work to do” if it cannot be confident of a sustained return of inflation to 2%.
The risk is therefore not simply another increase in policy rates. More importantly, it is the prospect of a sustained rise in long-term US Treasury yields, against a backdrop of large fiscal deficits and heavy Treasury supply. A disorderly increase in long yields would weigh immediately on the most expensive and duration-sensitive assets: technology, AI, semiconductors, listed real estate and long-duration growth equities.
Geopolitical risks also remain far from resolved. The war with Iran is becoming increasingly prolonged, with no credible exit scenario, and continues to create significant oil-price volatility. Markets may have become accustomed to the conflict, but an incident in the Strait of Hormuz, an extension of military operations or direct damage to energy infrastructure could trigger another sharp spike in energy prices. The conflict has already lasted far beyond the timeframe initially envisaged by the US administration.
This comes alongside the still unresolved war in Ukraine, persistent trade tensions and growing uncertainty around US policy. As the November 3 midterm elections approach, there is a risk that the US administration adopts more unpredictable or aggressive positions on trade, fiscal policy, regulation or geopolitics.
Finally, a more structural risk is emerging at the heart of the AI theme itself. The expansion of data centres is increasingly facing opposition from local communities, activist groups and public authorities, particularly in the United States. Projects are being challenged because of their substantial electricity and water requirements, pressure on local grids, environmental impact and concerns that households may ultimately bear part of the increase in energy bills.
This is important because AI growth now depends as much on access to electricity, grid capacity and building permits as on the availability of chips. Global data-centre electricity demand rose by 17% in 2025 and is expected to continue growing rapidly, making energy a physical and political constraint on the AI investment cycle. This could delay projects, increase infrastructure costs and reduce visibility on the pace of hyperscaler capital expenditure.
We have maintained a prudent exposure for several months, which has enabled us to preserve flexibility and improve performance in an unsettled market environment. Following the August rebound, we are now reducing our exposure to risk assets more decisively.
This is not an attempt to predict the precise timing of the next market reversal. It reflects a more defensive assessment of the reward-to-risk balance: at current levels of sentiment, valuation and geopolitical uncertainty, markets do not adequately compensate investors for taking elevated risk. We therefore prefer to enter the autumn with a more measured exposure, preserving the ability to redeploy capital should volatility create more attractive opportunities.
