To The Moon

The AI trade has a new problem, and it isn’t coming from a chip shortage or disappointing earnings.

It’s oil.

With crude prices approaching or exceeding $100 a barrel, depending on the benchmark, investors face an uncomfortable combination: rising energy costs, persistent inflation risks and pressure on expensive technology stocks.

At the same time, money is flowing towards companies with established earnings and more predictable cash flows. Procter & Gamble, Coca-Cola, Walmart, Costco and Berkshire Hathaway have attracted attention as investors reassess how much risk they want to take.

But here’s the bigger question: Could expensive oil change the market’s leadership just as quickly as AI transformed it?

🔎 1. Why $100 Oil Matters Beyond the Energy Sector

Higher oil prices don’t just benefit energy producers. They can also create problems across the wider economy.

Airlines face higher fuel bills. Transport and logistics companies may see operating costs rise. Manufacturers could struggle with more expensive inputs, while households have less money available for discretionary spending.

If companies cannot pass these costs on to customers, profit margins could come under pressure.

The inflation implications are equally important. If elevated energy prices push inflation higher, the Federal Reserve may have less flexibility to cut interest rates.

That matters for growth stocks, whose valuations often depend heavily on expectations of future earnings.

Oil doesn’t need to trigger a recession to hurt stocks. It only needs to make growth more expensive and interest-rate cuts less likely.

📉 2. Why AI Stocks Could Feel the Pressure

The AI investment story remains compelling, but the market is becoming more demanding about the returns it expects.

Building AI infrastructure requires enormous investment in data centres, advanced chips, electricity and cooling systems.

Higher energy prices could increase operating costs for data centres and other power-intensive businesses. At the same time, elevated interest rates could make financing new infrastructure more expensive.

This doesn’t mean AI demand will disappear.

Instead, investors may become more selective, favouring companies that can demonstrate strong revenue growth, improving margins and genuine free cash flow.

The biggest risk may not be that AI stops growing. It may be that investors have already priced in too much future growth.

💰 3. Why Defensive Stocks Are Getting Attention

As technology stocks face pressure, investors are looking for businesses that can generate relatively stable earnings across different economic conditions.

Recent gains have highlighted several names:

• $Procter & Gamble(PG)$ : Everyday consumer products can provide relatively resilient demand.

• $Coca-Cola(KO)$ : its established brand and distribution network supports its business model.

• $Wal-Mart(WMT)$ : Its scale and value-focused offering may appeal to consumers facing higher living costs.

• $Costco(COST)$ : Its membership model provides a recurring revenue stream.

• $Berkshire Hathaway(BRK.B)$ : Its diversified businesses and substantial cash reserves offer financial flexibility.

However, defensive stocks are not automatically bargains.

When too much money moves into the same group of companies, valuations can become stretched. If inflation eases and technology stocks rebound, some of those gains could reverse.

The opportunity lies in finding businesses with strong fundamentals at reasonable prices, not simply following the latest rotation.

⚡ 4. The Hidden Opportunity: Follow the Cash Flow

One possible consequence of this environment is a renewed focus on cash generation.

When financing costs are high and economic uncertainty increases, companies that can fund operations and investment from their own cash flow have an advantage.

That could favour established businesses with pricing power, disciplined capital allocation and manageable debt.

It could also benefit selected technology companies whose AI investments are already translating into meaningful earnings.

In other words, this may not be a simple battle between technology and defensive stocks.

It could be a market-wide shift towards companies that can prove their growth is financially sustainable.

🎯 5. What Would Tell Us the Selloff Is Nearing an End?

I would watch three signals:

First, oil prices. A sustained decline would ease some inflation concerns and reduce pressure on energy-intensive businesses.

Second, inflation and bond yields. If inflation moderates and yields stabilise, growth stocks could regain support.

Third, corporate earnings. Strong results and credible forward guidance from major technology companies could restore confidence in AI spending.

A convincing recovery would require more than a one-day rebound. Investors need evidence that economic conditions and earnings expectations are improving.

💡 My Take

Oil at $100 could become a serious headwind for the stock market if it keeps inflation elevated and delays interest-rate cuts.

But I wouldn’t write off AI just because investors are becoming more cautious. The stronger long-term businesses may still create substantial value, even if their share prices experience further volatility.

The important distinction is between a temporary change in market sentiment and a genuine deterioration in company fundamentals.

The next market winner may not be the company promising the biggest AI breakthrough. It could be the one that delivers the strongest earnings and cash flow despite rising costs.

Disclaimer: for discussion purposes only not financial advice