Market View: AI Fear Boosts CrowdStrike, JPMorgan Backs IREN & the US Bets on Tungsten  

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Good afternoon. Yesterday, we talked about the fear around AI. Well, when there's fear, there's also investment opportunity. And investors appear to have found one. Cybersecurity, CrowdStrike and Palo Alto Networks surged as markets began asking a new question about AI.

If increasingly powered systems create new risks, who gets paid to protect us from them? Right? Yesterday was all about Amodei and Anthropix CEO talking about the need to slow down the development of frontline models of AI. So a lot of fear in the market. But guess which type of company soared on the news? CrowdStrike and Palo Alto Networks. Why?

Let's follow the money. While semiconductor stocks will punish, cybersecurity stocks went in precisely the opposite direction. So CrowdStrike jumped almost 14% to an all-time high. Palo Alto Networks gained around 13%.

That's the biggest one-day rise since April last year. Fortinet climbed about 9%.

And the move was big enough to produce something the market hadn't seen before. An ETF tracking software stocks outperformed a semiconductor ETF by more than 10 percentage points in a single session. What's the investment logic underneath this? If AI becomes vastly more capable, the opportunity for companies selling the chips and infrastructure is enormous. So is a potential attack surface, right? AI can potentially make cyber attacks faster, cheaper, more autonomous. At the same time, companies deploying AI need stronger controls around identity, data, governance, what autonomous agents are actually allowed to do. So perhaps one of the most interesting ways to invest in AI isn't about asking who builds the intelligence, but who protects us from it. So CrowdStrike CEO George Kurtz doesn't agree that slowing AI development is necessarily the answer, and his argument is essentially the tech is already here and competitive forces mean development will continue. For cybersecurity companies, that could mean an expanding addressable market whether AI accelerates or slows. So yesterday's fear trade produced today's security trade, and the question for investors, could cybersecurity become one of the more durable second-order beneficiaries of the AI boom? So there you have it, CrowdStrike, Palo Alto Networks leading software stocks were never before seen feat. The software sector outperforming the chip sector to a historic degree in these escalating fears that potential AI models could reach a point that they become so powerful, they could spur legions of bots to take over the entire Internet. That was a fear call from Entropic CEO Dario Almudé.

All right, it is now time for Brokers Take. JPMorgan doubles its upgrade on a data center stock that struck a deal with NVIDIA earlier. This year, this is a fascinating example of how dramatically the AI boom is changing maybe the identity of companies. The stock is IREN, I-R-E-N. You might remember it primarily as a Bitcoin miner. JPMorgan increasingly sees something else, an AI infrastructure company. The bank has doubled upgraded, double upgraded IREN from underweight, all the weights overweight, lifted its price target from 46 US dollars to 65 US dollars. So what's changed? IREN has been using the power and data center infrastructure originally developed for Bitcoin mining to build an AI cloud service business. Importantly, it owns much of the stack. It owns land, grid connections, data centers, it buys GPUs, it sells computing capacity directly to customers, and it has relationships with names that matter like NVIDIA, Microsoft. JPMorgan believes that IREN is emerging as what it calls a top tier Neo cloud provider, essentially a specialist supplier of high powered AI computing capacity.

Now, the contrast with say MARA, that's a Bitcoin miner, is telling. JPMorgan double downgraded MARA from overweight to underweight, arguing it is more capital light in terms of its approach and that gives investors less direct exposure to value being created by AI data centers, which shows us something bigger about the AI trade. Investors not simply rewarding anyone who owns power or data center anymore, they're beginning to differentiate between who owns infrastructure and who can actually monetize it. And for today, JPMorgan's call is IREN, up.

You heard it here on Market View. I'm Michelle Martin. Let's take a look at what's happening with US markets now. Wall Street had a pretty difficult start to the week on Monday, although beneath the headline numbers, there was a fascinating rotation underway. The S&P 500 fell 0.5 percent. The Dow lost 0.3 percent. NASDAQ declined 0.6 percent. AI-related stocks bore much of the selling pressure following the weekend debate around whether frontier AI development needs to slow. But two other forces, investors cannot argue, and that is the price of oil and interest rates. So Brent crude settled around 105.68 a barrel after early approaching $110 a barrel. Meanwhile, we look at the US 10-year treasury yield. That's pushed through 5 percent for the first time since 2023 And all of this arrives just as the Federal Reserve prepares to make its interest rate decision. Markets are expecting the Fed to raise rates by a quarter-percentage point as policymakers confront inflation that remains stubborn and an oil shock that threatens to make the job harder. But here's where the week gets really interesting. A single rate hike doesn't necessarily kill a bull market. The bigger question is whether what we see Wednesday represents just one adjustment or the beginning of another tightening cycle. So if inflation remains sticky and energy prices remain high, then investors may have to rethink assumptions about where the interest rates start to settle. So you're going to watch beyond the Fed's decision and listen to what policymakers say about what comes next because markets can digest one hike. What they might find harder to digest is this higher-for-longer expectation. So could the stock market do something strange after the Fed's decision this week?