Analysis

Greg Abel’s Patient Baton: How Discipline—Not Drama—Will Define Berkshire Hathaway’s Next Century

Published

2 months ago

May 3, 2026

Greg Abel’s first annual meeting as Berkshire Hathaway CEO delivered a clear signal: patience and disciplined capital allocation will define the post-Buffett era. With a record $397.4 billion cash pile and operating earnings up 18%, here’s what investors need to understand.

The Morning After a Legend Leaves the Stage

When someone really special steps down, it gets really quiet. On May 2, 2026, at the CHI Health Center in Omaha, Nebraska, the people who own parts of Berkshire Hathaway got together for their yearly meeting. This was the first time in 60 years that Warren Buffett wasn’t in charge of the meeting. The big room was only half full, which was really different from the 40,000 people who used to come every year. And the simple, wise sayings that Warren Buffett used to share with everyone were mostly gone.

It felt like something was missing, like the air in the room wasn’t the same without him. The meeting was still important, but it wasn’t the same without the person who had been leading it for so long. People were probably thinking about how things would change now that Warren Buffett wasn’t in charge. The quiet in the room was like a sign that something big had happened, and everyone was waiting to see what would come next. Instead of flashy announcements, the CEO focused on in-depth business talks, key performance numbers, and a well-structured approach. As the sole leader of the sixth-largest company in the world, he gave his first public presentation and said exactly what long-term investors wanted to hear. He showed that he is a careful and disciplined CEO, which is what the company needed at this time. This approach was a breath of fresh air for investors who are in it for the long haul.

“One of our greatest strengths at Berkshire is patience and being disciplined at allocating our capital. We’re not anxious to deploy capital into subpar opportunities.” — Greg Abel, Berkshire Hathaway CEO, Omaha, May 2, 2026

Greg Abel, 63, the Canadian-born engineer-turned-conglomerate-executive who spent more than 25 years earning Buffett’s trust, stood before shareholders and said something profoundly unfashionable in an era of algorithmic trading, AI hype cycles, and relentless activist pressure: we are not in a hurry.

That restraint is not timidity. It is strategy. And understanding why it may be the most sophisticated capital allocation posture available to a $1 trillion enterprise in today’s market environment is the central task of this analysis.

Abel’s First Letter: Stewardship, Not Showmanship

Before the Omaha meeting, Abel authored his first annual shareholder letter as CEO—a document that financial analysts, value investors, and institutional allocators parsed with the intensity usually reserved for Federal Reserve minutes. The letter’s opening paragraph set the tone with elegant simplicity: “Your capital is commingled with ours, but it does not belong to us. Our role is stewardship.”

That single sentence—eight words distilled from decades of Buffett doctrine—tells you nearly everything about how Abel intends to run Berkshire. He is not positioning himself as a disruptor. He is positioning himself as a custodian.

The letter repeatedly invoked net operating cash flow as the true compass for evaluating Berkshire’s varied businesses, comparing current performance against five-year averages rather than quarterly analyst estimates. Abel committed to assessing value carefully, acting patiently, and holding for the long term—”preferably forever.” He reiterated the fortress balance sheet as a non-negotiable asset, writing that Berkshire’s liquidity ensures the company “can act decisively when opportunities appear and remain resilient during difficult periods.”

This is the language of a man who has read the entire Buffett canon, internalized it, and is now authoring the next chapter in the same idiom—without copying the syntax.

The $397 Billion Question: Patience or Paralysis?

The most provocative number hovering over the 2026 annual meeting was not an earnings figure but a bank balance. Berkshire’s cash, Treasury bills, and short-term securities reached a record $397.4 billion at the end of Q1 2026, up from $373 billion at year-end 2025—itself a record inherited from Buffett’s 13-consecutive-quarter streak as a net seller of equities.

For context, $397 billion is roughly the GDP of Malaysia. It exceeds the market capitalization of most S&P 500 companies. It is not a liquidity buffer. It is a strategic arsenal.

Critics will frame this as elephantine inertia—a conglomerate so large it can no longer find elephants large enough to hunt. That framing mistakes constraint for character. Berkshire is not sitting on cash because it cannot decide what to buy. It is sitting on cash because, as both Abel and Buffett made clear on Saturday, the prices being asked for most assets do not reflect the returns Berkshire requires.

Buffett, now 95 and attending as chairman emeritus, said it plainly in a sideline interview with CNBC’s Becky Quick: “It isn’t our ideal environment in terms of deploying cash for Berkshire,” citing elevated market valuations as the central obstacle. He noted that prices for “an awful lot of things will look awfully silly,” channeling the same sensibility he expressed in his famous 1999 Fortune essay warning against extrapolating a decade of equity returns into the next.

Abel echoed the sentiment from the stage with characteristic operational precision: “It doesn’t mean you need to deploy all your capital and spend all your money.” He acknowledged that Berkshire had identified several firms with interesting management and operations but wasn’t interested in paying current valuations to own them. This is not indecision—it is the Ted Williams strike zone philosophy applied to corporate finance. Wait for your pitch.

The brilliance of that posture becomes clearer when you consider the alternative. A CEO who felt compelled to spend $400 billion to demonstrate decisiveness would almost certainly overpay, diluting decades of compounding in the process. The history of corporate M&A is a graveyard of such urgency.

Operating Results: The Unglamorous Engine Keeps Humming

While the cash pile attracts the headlines, the underlying engine of Berkshire’s operating businesses continues to generate returns that most conglomerates can only envy. Q1 2026 operating earnings came in at $11.35 billion, up nearly 18% year-over-year—a number that reflects the durable cash generation of Berkshire’s 60-plus operating subsidiaries rather than the volatility of mark-to-market investment gains.

Net income attributable to shareholders more than doubled, rising to $10.1 billion from $4.6 billion in Q1 2025, as the value of Berkshire’s equity portfolio—still anchored by Apple, American Express, Coca-Cola, and Moody’s—appreciated sharply.

The insurance segment, long the golden goose of Berkshire’s float-driven model, delivered an underwriting profit of $1.7 billion, up from $1.34 billion in the same period last year. Ajit Jain, the legendary insurance chief who joined Abel onstage in Omaha, reinforced the discipline-over-volume philosophy: insurance premiums are only written when they can be done profitably, on terms that make sense for the long haul. When the market softens and competitors chase volume at inadequate rates, Berkshire pulls back—even if the resulting numbers look temporarily rough.

BNSF railroad and Berkshire Hathaway Energy both showed improved operating results, with Abel spending considerable time on his energy businesses’ pivotal role in the AI infrastructure buildout. His observation that hyperscalers and data centers “have to bear the full cost” of the energy they consume was both a policy statement and a revenue signal: Berkshire’s utility assets are positioned to be among the key beneficiaries of the data center boom, provided the regulatory and cost frameworks are structured fairly.

Continuity vs. Evolution: What Actually Changes Under Abel?

The meeting carried the branding “The Legacy Continues”—a phrase that could read as reassurance or as obligation, depending on your disposition. For investors trying to map Abel’s tenure against Buffett’s, three meaningful differences are worth tracking closely.

Communication style. Buffett translated capitalism into parable. Abel translates it into operations. Where Buffett might invoke Ben Franklin, Abel will cite net operating cash flow and five-year averages. This is not a deficiency—it is a different skill set. Abel spent decades as the hands-on operator of Berkshire Hathaway Energy, running a complex regulated utility empire across multiple jurisdictions. He thinks in infrastructure, not allegory. Shareholders who were drawn to Omaha for Buffett’s wit will need to recalibrate; those drawn for financial substance will find Abel’s style more directly useful.

Collaborative leadership. Abel notably shared the stage with his top lieutenants—a departure from the Buffett-Munger bilateral that defined the meeting’s format for decades. CEOs of Dairy Queen, See’s Candies, Brooks Running, and Jazwares were given time to address shareholders. NetJets CEO Adam Johnson, who now oversees 32 retail and service businesses, was prominently featured. This distributed model signals something important: Abel is building an institutional structure, not a cult of personality. When the latter is inevitable (as it was with Buffett), it is also irreplaceable. When the former is constructed deliberately, it endures.

Technology posture. Buffett famously avoided technology investments for most of his career, then made an extraordinarily well-timed bet on Apple. Abel is carving out a more nuanced stance. He told shareholders that Berkshire “isn’t going to do AI for the sake of AI,” but acknowledged that AI presents both significant opportunities (particularly through the energy infrastructure that powers data centers) and existential risks—including the cybersecurity vulnerabilities illustrated, somewhat surreally, when the first shareholder question of the day arrived via a deepfake of Buffett himself.

The Cultural Moat: Berkshire’s True Durable Advantage

Perhaps the most underappreciated element of Berkshire’s post-Buffett positioning is the cultural architecture that Buffett spent 60 years constructing. Dan Sheridan, CEO of Brooks Running, captured it well from the floor of the exhibit hall: “I think this is a very deeply rooted culture that Warren has created, and I believe the transition to Greg is going to be rooted in those values that Warren has for 60 years instituted and will continue.”

That culture operates on several levels simultaneously. At the subsidiary level, Berkshire’s radical decentralization—CEOs run their businesses with minimal headquarters interference, maximizing accountability and entrepreneurial energy—has survived multiple management transitions at the operating company level without degradation. At the capital allocation level, the aversion to what Abel called the “ABCs”—arrogance, bureaucracy, and complacency—functions as an immune system against the empire-building tendencies that have destroyed shareholder value at comparable conglomerates.

Critically, the float model—insurance premiums invested in equities and bonds before claims are paid—remains structurally intact and irreplaceable. No competitor can simply choose to replicate it. It took Buffett and Jain decades to build GEICO and General Re and the reinsurance operations into the capital generation machines they are today. This is the moat that other moats flow from, and Abel understands it at the granular operational level that the job requires.

The Japan Chapter: Patient Capital’s Finest Recent Chapter

One of Buffett’s most celebrated late-career decisions—accumulating roughly $20 billion in stakes across five major Japanese trading houses (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo)—remains a template for how Berkshire approaches patient capital deployment at scale. Those positions, initiated quietly in 2019 and revealed on Buffett’s 90th birthday, have since generated substantial gains as the trading companies reported record profits, increased dividends, and bought back shares aggressively.

The Japan investments embody the Berkshire thesis in concentrated form: identify businesses with durable economics trading at irrational discounts, accumulate quietly, hold without the pressure to demonstrate activity, and let compounding do the heavy lifting. Abel has signaled that Berkshire’s relationship with its Japanese partners will continue and deepen. More broadly, the Japan playbook offers a template for how $397 billion in dry powder might eventually be deployed—not in a single transformative acquisition, but in patient accumulation of concentrated positions in undervalued, cash-generative businesses, wherever global dislocations create them.

Key Investor Takeaways

For investors assessing Berkshire in the post-Buffett era, several signals deserve close attention:

The buyback signal. Berkshire repurchased $234.2 million in stock during Q1 2026—modest but meaningful, its first buyback activity since May 2024. The resumption suggests Abel views current prices as at or below intrinsic value, a useful calibration data point. The average Class A repurchase price of $729,701 and Class B price of ~$486.92 establish implicit floor valuations.
The valuation discipline signal. Abel explicitly told shareholders that Berkshire has identified companies with excellent management and operations but won’t pay current prices. This is Berkshire’s version of a disciplined capital deployment framework: the opportunity set exists, but the entry prices do not yet justify action.
The insurance discipline signal. Jain’s comments about pulling back in competitive market conditions—even at the cost of volume—confirm that Berkshire’s insurance profitability is structural, not cyclical. The $1.7 billion underwriting profit in a quarter when peers were facing elevated catastrophe losses is not accidental.
The AI infrastructure signal. Abel’s emphasis on Berkshire’s energy businesses as essential infrastructure for the data center boom represents the most actionable near-term growth vector for a company of Berkshire’s scale. Unlike direct AI investments, utilities provide regulated, predictable returns with AI-driven tailwinds—precisely the kind of investment profile Berkshire has always preferred.

The Elephant in the Room: Scale as Berkshire’s Primary Challenge

Any honest analysis of Berkshire’s post-Buffett prospects must grapple with the constraint that Abel himself will never quite name directly: size. At roughly $1 trillion in market capitalization and $397 billion in available capital, Berkshire has effectively outgrown the universe of investments that can move the needle. A $10 billion acquisition that would transform a mid-cap company is almost irrelevant to Berkshire’s per-share value. Only acquisitions in the $50 billion–$150 billion range register meaningfully—and at current valuations, such acquisitions are nearly impossible to execute at returns Berkshire would accept.

This is the fundamental tension of the Abel era, and it has no clean resolution. The most likely outcome is a gradual shift toward more international exposure (building on the Japan template), larger bolt-on acquisitions within existing verticals like energy and industrials where Abel has the deepest expertise, and continued share repurchases when prices are attractive.

What the scale constraint definitively rules out is the kind of transformative bet—a General Re in 1998, a Burlington Northern in 2009—that Buffett made at critical junctures to reshape Berkshire’s future. Those opportunities required not just capital but a market dislocation severe enough to offer Berkshire-sized targets at Berkshire-acceptable prices. They are rare, and when they appear, Abel will need to act with the conviction of someone who has never previously managed an investment portfolio at the public company level. That is a legitimate and unresolved question.

Why Patience Remains a Superpower

Buffett, in his sideline CNBC interview, made an observation that cuts to the heart of why Berkshire’s cash patience is a genuine competitive advantage rather than institutional inertia: “We’ve never had more people in a gambling mood than now.”

The evidence is abundant. Retail options volumes at record highs. Meme stocks cycling in and out of speculative manias. Cryptocurrency valuations that defy discounted cash flow analysis. AI-adjacent companies trading at revenue multiples that price in decades of flawless execution. In this environment, a company with $397 billion in dry powder and the institutional culture to resist deployment pressure is not being passive—it is accumulating an option on the next dislocation.

Those dislocations come. They always do. In 2008, Berkshire deployed capital into Goldman Sachs and General Electric at terms available only to lenders of last resort. In 2020, Berkshire was slower to deploy than the historical record would suggest it should have been—a fact Buffett himself acknowledged—but the Japanese trading house accumulation that began in 2019 proved masterful timing in retrospect. The lesson is not that Berkshire is infallible. It is that a company with permanent capital, a fortress balance sheet, and the patience to wait for its pitch will consistently outperform over the full cycle, even if it lags in the middle innings of a bull market.

Berkshire’s Class B shares have underperformed the S&P 500 by 12.4% since Abel was named CEO—a datapoint that bears watching but almost certainly reflects the transition anxiety of a shareholder base recalibrating to a new face rather than any deterioration in the underlying business. For long-term investors, this is exactly the kind of sentiment-driven dislocation that Berkshire’s own investment framework would identify as an opportunity.

Conclusion: The Long Game Is the Only Game Berkshire Plays

Greg Abel is not Warren Buffett. He will never be Warren Buffett. And the sooner investors stop expecting him to be, the sooner they will be able to see what he actually is: a disciplined, operationally sophisticated, culturally literate steward of one of the greatest capital allocation machines ever assembled.

His first shareholder letter established the terms of engagement with clarity and humility. His first annual meeting—delivered without the safety net of Buffett’s presence on stage—demonstrated that he can hold the room, manage the Q&A, honor the legacy, and chart a forward course, all simultaneously. Warren Buffett himself, watching from the audience, told the crowd that Abel is “very, very smart about businesses” and expressed satisfaction with the timing and execution of the transition.

The fundamental premises of Berkshire’s model—permanent capital, decentralized operations, float-funded investing, cultural alignment, and an absolute refusal to deploy capital into subpar opportunities—remain intact under Abel’s stewardship. The $397 billion in cash is not a problem to be solved. It is a testament to sixty years of disciplined refusal to be rushed. In an investment landscape increasingly defined by the tyranny of the quarterly calendar, that refusal is rarer and more valuable than ever.

Patience, as Abel put it in Omaha, is one of Berkshire’s greatest strengths. The market will spend the next several quarters deciding whether to believe him. The long-term record suggests it probably should.

Key Takeaways at a Glance

Berkshire’s Q1 2026 cash pile hit a record $397.4 billion, up from $373 billion at year-end 2025
Operating earnings rose 18% year-over-year to $11.35 billion in Q1 2026
Abel’s core message: patience in capital allocation is a strength, not a failure to act
Abel explicitly confirmed Berkshire has identified good companies but won’t pay today’s elevated prices
Insurance underwriting profit of $1.7 billion confirms the structural strength of the float model
The first share buybacks since May 2024 ($234.2 million) signal Abel’s view on intrinsic value
The culture of decentralization, anti-bureaucracy, and long-term holding is explicitly preserved
Energy/utility infrastructure is positioned as Berkshire’s primary near-term AI-era growth vector
Buffett publicly praised Abel as “very, very smart about businesses”

Frequently Asked Questions

Q: Who is Greg Abel and why is he running Berkshire Hathaway? Greg Abel, 63, is a Canadian-born executive who spent more than 25 years at Berkshire Hathaway, primarily as the head of Berkshire Hathaway Energy. He was publicly identified as Buffett’s successor in 2021 and became CEO on January 1, 2026, after Buffett announced his retirement at the 2025 annual meeting. Buffett remains chairman emeritus.

Q: Why is Berkshire Hathaway not deploying its $397 billion cash pile? Abel has stated clearly that Berkshire will not deploy capital into “subpar opportunities”—meaning companies whose current market prices do not offer the return profile Berkshire requires for long-term compounding. With equity markets trading at historically elevated valuations, the opportunity cost of patience is low while the risk of overpaying is high. Buffett separately noted that the current environment is “not ideal” for deploying Berkshire’s cash.

Q: How did Berkshire perform in Q1 2026 under Greg Abel? Berkshire reported operating earnings of $11.35 billion in Q1 2026, up nearly 18% from the prior year. Net income more than doubled to $10.1 billion. The insurance segment reported a $1.7 billion underwriting profit, up from $1.34 billion. The cash pile grew to a record $397.4 billion from $373 billion at year-end 2025.

Q: Is Greg Abel’s investment style different from Warren Buffett’s? Abel communicates in operational specifics rather than Buffett’s parables, but the underlying investment philosophy—patience, discipline, long holding periods, cultural alignment, refusal to overpay—is explicitly preserved. Abel has also signaled a more systematic approach to leadership, sharing the stage with subsidiary CEOs and building an institutional rather than personality-driven culture.

Q: What is Berkshire Hathaway’s approach to artificial intelligence under Greg Abel? Abel stated that Berkshire will not “do AI for the sake of AI.” The conglomerate’s most direct AI exposure comes through Berkshire Hathaway Energy, whose utility assets power data centers. Abel argued that hyperscalers must bear the full cost of the energy they consume, positioning Berkshire’s utilities as infrastructure beneficiaries of the AI buildout. He also flagged cybersecurity as a significant risk being actively managed, particularly within the insurance businesses.

Q: Should long-term investors hold Berkshire Hathaway stock under Greg Abel? This is a financial decision that depends on individual circumstances, and readers should consult a financial advisor. Analytically, Berkshire’s Class B shares have underperformed the S&P 500 by approximately 12.4% since Abel was named CEO—likely reflecting transition anxiety rather than fundamental deterioration. The underlying business continues to generate record operating earnings and a growing cash reserve, and Abel has demonstrated cultural continuity with the Buffett playbook. Investors with long time horizons who value capital preservation and disciplined compounding have hi

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Analysis

Strait of Hormuz 2026: Why Markets Still Don’t Trust It’s Open

Published

10 hours ago

July 11, 2026

Abdul Rahman

If you’ve followed headlines about the Strait of Hormuz over the past several months, you’d be forgiven for losing track of whether it’s actually open. That confusion isn’t a media failure — it genuinely has opened, closed, and reopened multiple times since the conflict began, and the pattern itself is the real story markets need to understand, far more than any single day’s price move.

A Timeline That Explains the Market’s Persistent Skepticism

The crisis began February 28, 2026, when US and Israeli military operations against Iran triggered Iranian retaliation, including drone, ballistic missile, and small-boat attacks on vessels attempting to transit the Strait (Brookings). By March 4, Iranian forces formally declared the Strait “closed.” Insurance for transiting vessels became unavailable or prohibitively expensive, and seafarers largely refused the journey — meaning the Strait was effectively shut even without a formal blockade in the technical sense (Brookings).

What followed was a genuinely chaotic sequence that explains why traders remain reluctant to fully price in a resolution even now. On April 9, there was no sign an earlier agreement to lift the blockade was actually being implemented — ships were once again prevented from passing. Abu Dhabi National Oil Company’s CEO confirmed the Strait remained closed despite an announced ceasefire, noting 230 loaded oil tankers were waiting inside the Gulf (Wikipedia — 2026 Strait of Hormuz crisis). On April 17, Iran’s foreign minister announced the Strait was open to all shipping — oil prices dropped 11% immediately following the announcement. The very next day, April 18, Iran closed it again, citing the US refusal to lift its own naval blockade in response.

Even the June 17 memorandum of understanding between Trump and Iranian President Masoud Pezeshkian to formally end the war and the blockades didn’t hold cleanly: on June 20, Iran said it had closed the Strait again, citing continued Israeli strikes in southern Lebanon as a violation of the broader ceasefire agreement — a claim the US military denied (Wikipedia). By June 27, the US Navy’s Joint Maritime Information Center announced a widened shipping route through the Strait near Oman, an action explicitly framed as challenging Iran’s control over the waterway rather than a clean bilateral resolution.

Why This Chokepoint Matters More Than Any Other Piece of Global Infrastructure

Approximately 20 million barrels of oil per day move through the Strait of Hormuz — roughly 20% of global seaborne oil trade and about 27% of the world’s maritime crude oil and petroleum product trade combined (Congressional Research Service). At its narrowest point, the Strait is just 33-34 kilometers wide, split into two unidirectional two-mile-wide shipping lanes separated by a two-mile buffer zone sitting entirely within Iranian and Omani territorial waters (Congressional Research Service).

Critically, no rerouting option exists that can replace this volume at comparable cost. An extended full closure would remove 17-21 million barrels from daily global supply against total world consumption of roughly 100 million barrels per day — a supply shock with no readily available substitute (Ziro Market).

The Damage Already Done, Even With Partial Reopening

The International Energy Agency characterized the disruption as the largest supply disruption in the history of the global oil market (Wikipedia — Economic impact of the 2026 Iran war). At peak conflict intensity in February-March 2026, Brent crude surged well above $120 per barrel. As ceasefire talks progressed through May and June, prices retreated significantly — falling to around $95-100 per barrel by early June, and briefly dipping to $78.24 per barrel by mid-June, the lowest level since March 3, before the framework agreement was formally signed (Al Jazeera).

But the ripple effects extend well beyond crude oil pricing. The Strait closure disrupted roughly 45% of global sulfur supply — critical for fertilizer production, copper industry metal leaching, and sulfuric acid manufacturing — and constrained helium supply, a commodity essential to semiconductor manufacturing (Wikipedia — Economic impact). Shipping companies including Maersk, CMA CGM, and Hapag-Lloyd suspended transits through the Strait and related routes like the Red Sea entirely, forcing rerouting around the Cape of Good Hope that added two to three weeks to journey times and increased per-shipment costs by 30-50% (Ziro Market).

Europe’s Quieter But Deeper Crisis

While oil price headlines dominated coverage, Europe faced an arguably more severe parallel crisis through the suspension of Qatari liquefied natural gas exports combined with the Strait closure — hitting at the worst possible moment, with European gas storage sitting at just 30% capacity following a harsh 2025-2026 winter. Dutch TTF gas benchmarks nearly doubled to over €60/MWh by mid-March (Wikipedia — Economic impact).

The European Central Bank responded by postponing planned interest rate reductions on March 19, simultaneously raising its 2026 inflation forecast and cutting GDP growth projections, with UK inflation specifically projected to breach 5% during 2026. Chemical and steel manufacturers across the UK and EU imposed surcharges of up to 30% to offset surging electricity costs, and the ECB explicitly warned that a prolonged conflict risked pushing major energy-dependent economies, including Germany and Italy, into technical recession by year-end.

Why OPEC+ Couldn’t Simply Fill the Gap

A natural question is why Saudi Arabia and the UAE — the two largest Gulf Cooperation Council producers with meaningful spare capacity — didn’t simply increase output to compensate. The answer is logistical rather than a lack of willingness: the Strait closure itself limited their ability to actually export any increased production volumes, even when pumping more oil, because the export bottleneck was the same chokepoint causing the broader crisis (Ziro Market). Total OPEC country production fell more than 30% since the start of the war, and the region’s spare capacity — the traditional shock absorber for global oil markets — proved largely irrelevant when the actual export route itself was under attack (Brookings).

US shale producers, meanwhile, responded more slowly to the price signal than historical patterns would predict. Rig counts stayed largely steady through April 2026, though well-completion activity in the Permian Basin did rise roughly 20% over several weeks as previously drilled wells came into production — still below pre-pandemic activity levels overall (Brookings).

The Market Is Still Pricing a Discount for Uncertainty, and Analysts Say That’s Correct

Vandana Hari, founder of Singapore-based Vanda Insights, offered perhaps the most useful framing for understanding current market behavior: crude’s slide following the memorandum of understanding is “entirely sentiment-driven,” with markets front-running the prospective reopening and likely pricing in a best-case scenario for normalized flows — meaning potential hiccups, from logistics to renewed geopolitical tensions, aren’t being adequately factored in (Al Jazeera).

Given the actual track record — multiple announced reopenings followed by renewed closures throughout April and June — that skepticism looks well-founded rather than excessive.

What This Means for Businesses and Investors Going Forward

For companies with Gulf-dependent supply chains: Treat any single reopening announcement as provisional rather than a genuine all-clear, given the pattern of reversals throughout the spring. Maintaining rerouting contingency plans and insurance flexibility remains prudent even after formal ceasefire signings.

For inflation-sensitive investors and central bank watchers: The relationship Ziro Market’s analysis highlights is worth internalizing directly: whether oil settles near $80-85 (supporting rate cuts, lower CPI, stronger oil-importing currencies) or spikes back toward $120 (elevated inflation, delayed rate cuts) functions as a genuine macro regime switch — not a marginal input, but potentially the single largest swing factor for 2026 global monetary policy.

For commodity-exposed sectors beyond energy: The sulfur, fertilizer, and helium supply disruptions are underappreciated second-order effects that specifically hit agriculture and semiconductor manufacturing — sectors not typically associated with Middle East conflict risk but directly exposed through this specific chokepoint.

The Bottom Line

The Strait of Hormuz crisis of 2026 has been less a single supply shock than a recurring pattern of partial resolutions and renewed disruptions, and that pattern itself is the most important thing for markets and businesses to understand going forward. Prices have retreated substantially from their conflict-peak highs, and the June 17 memorandum of understanding represents genuine diplomatic progress. But given that the Strait has been declared “open” and then closed again multiple times within the same several-week windows, treating the current relative calm as a durable resolution — rather than the latest phase in an ongoing negotiation — would be a mistake that both markets and policymakers seem determined not to repeat.

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AI

AI Capex Bubble 2026: The Hidden $662B Debt Nobody Reports

Published

10 hours ago

July 11, 2026

Abdul Rahman

Every earnings season now brings a fresh wave of headlines about hyperscaler AI capital expenditure hitting a new record. The “big four” — Amazon, Microsoft, Alphabet, and Meta — are on track to spend roughly $725 billion combined in 2026, a 77% jump from the $410 billion deployed in 2025 (UnboxFuture). That number gets reported constantly. What almost nobody is reporting with the same prominence is a separate figure that may matter more: roughly $662 billion in data center lease commitments that hyperscalers have already signed but not yet begun — obligations that currently sit entirely off balance sheet.

Why the Off-Balance-Sheet Number Changes the Whole Picture

Under GAAP accounting rules governing when a lease “commences,” these signed-but-not-started commitments don’t appear in the capital expenditure figures analysts and investors typically scrutinize when assessing hyperscaler financial health. According to reporting citing Moody’s early-2026 analysis, this shadow liability is larger than the combined on-balance-sheet debt of the same companies (Anomaly Investments).

That detail matters enormously for one specific argument AI infrastructure bulls have relied on: the claim that this buildout is being conservatively self-funded from operating cash flow rather than risky leverage. Once the full picture of committed-but-unrecognized obligations is accounted for, that defense becomes much harder to sustain.

The Debt Is Already Showing Up, Not Just Theoretical

This isn’t a purely hypothetical concern about future liabilities. Big tech companies have already issued more than $100 billion of bonds in 2026 specifically to help fund AI capital expenditure, and investors have responded by demanding record levels of protection against potential defaults through credit default swaps — essentially insurance policies against bond default (IEEE ComSoc).

Individual company examples illustrate the shift toward leverage: Oracle issued an $18 billion bond specifically tied to its data center expansion; CoreWeave secured a $2.6 billion loan alongside a $1.75 billion bond package; and OpenAI and Oracle reportedly entered into a $100 billion vendor financing arrangement (Anomaly Investments). At Amazon specifically, capital expenditure over the trailing twelve months has reached $151 billion — a figure that now exceeds the company’s entire operating cash flow, pushing free cash flow into negative territory.

The Depreciation Assumption Almost No Coverage Questions

Here’s an angle genuinely underexplored across most financial media: the depreciation schedules hyperscalers use for AI hardware assume a five-to-six-year useful life. But given how rapidly GPU generations are turning over and how intensively AI workloads are pushing hardware utilization, critics argue the real economic life of this equipment is closer to two to three years. That gap between assumed and actual depreciation is estimated to understate true asset depletion by roughly $176 billion between 2026 and 2028 alone — a figure that grows as accelerating token consumption pushes hardware utilization beyond the assumptions built into current depreciation schedules (Anomaly Investments).

Layered on top of that is the energy cost curve: running the current roughly 30-gigawatt installed base of AI infrastructure costs approximately $27 billion annually today, but that figure is projected to climb to between $45 and $90 billion per year as capacity scales toward 2029 — and crucially, these are first charges against revenue, not optional or deferrable costs.

The Revenue Gap: Who’s Actually Paying for All This?

The most commonly cited justification for the capex surge is that the pure-play AI vendors — OpenAI, Anthropic, and others — represent a massive and rapidly growing revenue opportunity. The reality is more nuanced. OpenAI’s roughly $20 billion annualized revenue run rate, while genuinely impressive for a company with barely any consumer products three years ago, represents only about 3% of projected 2026 hyperscaler capex. Anthropic’s roughly $9 billion run rate, despite showing 9x year-over-year growth, occupies a similarly small share. The entire cohort of pure-play AI vendors combined — including Cohere, Mistral, Perplexity, and others — likely accounts for less than $35 billion in projected combined 2026 revenue against a hyperscaler capex figure exceeding $700 billion (Futurum Group).

That gap is the crux of the bubble debate: hyperscalers are betting the infrastructure will ultimately serve enterprise adoption and their own AI services broadly, not just third-party AI vendor revenue — but that bet requires enterprise AI monetization to arrive at a scale that, as of mid-2026, remains largely unproven outside of code generation and basic customer service automation.

The Skeptic’s Case, From Inside Goldman Sachs Itself

The most prominent voice of institutional skepticism doesn’t come from an outside critic — it comes from within Goldman Sachs itself. Jim Covello, the bank’s Head of Global Equity Research, has consistently argued the economics of the generative AI transition are fundamentally flawed, stating in mid-2026 that the industry has moved “further away” from justifying the scale of capital expenditure compared to two years prior (UnboxFuture). Covello has specifically flagged circular capital flows between cloud providers and AI startups — where hyperscalers invest in AI companies that then spend that same capital purchasing compute from those same hyperscalers — as a red flag reminiscent of vendor financing patterns seen in the dot-com era.

The valuation comparison to that era is explicit and increasingly common among strategists: US technology and AI equities carry EV/EBITDA multiples near 25x, close to historical extremes and above the telecom valuations that preceded the 2000 dot-com peak. More specifically, capex is currently expanding roughly 46 percentage points faster than revenue growth — a gap that exceeds the 32-point divergence observed during the 2001 telecom excess cycle (Allianz Research). Separately, Bank of America strategists have pointed out that AI stock concentration has reached levels matching prior bubble peaks, with the “AI Big 10” (Nvidia, Microsoft, Alphabet, Amazon, Meta, Apple, Tesla, Broadcom, Micron, and AMD) now making up 41% of the S&P 500 — comparable to the concentration of tech and telecom stocks during the actual dot-com bubble (Yahoo Finance).

The Bull Case Isn’t Naive Either

It would be inaccurate to frame this purely as informed skeptics versus blind enthusiasm. Goldman Sachs’ own broader research (distinct from Covello’s individual view) models roughly $7.6 trillion in cumulative AI capital expenditure between 2026 and 2031, built on the expectation that token consumption will increase 24-fold by 2030, driven largely by enterprise AI agents becoming embedded in production workflows rather than remaining experimental (Sesame Disk / Goldman commentary). Microsoft has disclosed an $80 billion backlog of Azure orders it currently cannot fulfill due to power constraints — genuine evidence that demand, at least for existing capacity, is outpacing even the current aggressive build-out pace (Futurum Group).

Leverage levels also remain more conservative than headlines suggest in absolute terms: the top five US capex providers reported a combined $385 billion in debt at the end of 2025, with leverage ratios still roughly 20% below the “high spender” cohort from the 2000 dot-com peak, according to Allianz Research analysis — meaning rising debt levels are a trend worth monitoring closely, not yet an acute crisis.

What Happens If the Bubble Skeptics Are Right

Historical infrastructure cycles offer a specific and somewhat counterintuitive lesson: the investors who fund the initial frenzied build-out phase rarely capture the long-term rewards. If the AI capex cycle follows the pattern of the 1998-2001 fiber optic buildout, hyperscalers may eventually be forced to write down the value of data centers and GPUs purchased at today’s prices and utilization assumptions. But that collapse in computing costs, paradoxically, could pave the way for a new generation of leaner, genuinely profitable software companies to build on top of the resulting cheap, overbuilt infrastructure — much as fiber-optic overbuild eventually enabled the 2000s streaming and cloud computing boom, even after the original telecom investors were wiped out.

What This Means for Investors and Businesses

For equity investors, the practical signal to watch isn’t the headline capex number — it’s the widening gap between capex growth and revenue growth, and whether that gap begins narrowing through 2027 as enterprise adoption either accelerates or disappoints. For businesses evaluating AI vendor relationships, the circular-financing pattern flagged by Covello is worth diligence: understanding whether an AI vendor’s revenue depends partly on capital originally supplied by the same hyperscaler providing its compute is a legitimate red flag for assessing that vendor’s underlying financial independence. For fixed-income investors, the rising credit default swap pricing on hyperscaler-linked debt is itself a market signal worth tracking as an early indicator of shifting sentiment, independent of equity price action.

The Bottom Line

The AI infrastructure buildout genuinely is the largest corporate capital expenditure cycle in recorded history, and it’s happening for real, defensible reasons tied to a genuine technology shift. But the debate over whether it constitutes a bubble isn’t really about whether AI technology is useful — it’s about whether the timing of returns can keep pace with public equity markets’ patience, and whether the $662 billion in off-balance-sheet lease commitments, aggressive depreciation assumptions, and circular vendor financing arrangements represent manageable financial engineering or the early architecture of a genuinely serious correction. Both cases have real evidence behind them. What’s clear is that the headline capex figure everyone quotes is no longer the most important number in this story.

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Markets & Finance

Gold Overtakes US Treasuries in Reserves: What It Means

Published

10 hours ago

July 11, 2026

Abdul Rahman

Most gold coverage in 2026 has fixated on the price chart — the spectacular run from roughly $2,633 an ounce at the start of the year to fresh record highs above $5,400 by mid-year (Intellectia). That’s a legitimate story. But it’s not the most important one. The more consequential shift is structural, not seasonal: gold has overtaken US Treasuries as the largest share of global central bank reserves for the first time in three decades (BlackRock).

That’s not a headline about a commodity rally. It’s a headline about the architecture of the global monetary system quietly shifting under everyone’s feet.

The Trigger Most Coverage Undersells

The pivotal moment behind this shift traces back to 2022, when roughly $300 billion of Russian central bank foreign exchange reserves were frozen as part of international sanctions following the invasion of Ukraine (ISA Bullion). For reserve managers around the world — not just in Russia — that event functioned as a wake-up call: dollar-denominated assets held abroad are not unconditionally safe from geopolitical sanctions risk. Gold, by contrast, carries no counterparty risk; nobody can freeze a gold bar sitting in a country’s own vault.

That single realization has reshaped reserve management strategy globally. Central bank gold purchases averaged 225 tonnes per quarter between 2021 and 2025 — roughly double the pace seen from 2016 to 2020 (J.P. Morgan Global Research). BRICS+ nations now hold 17.4% of global gold reserves, up sharply from just 11.2% in 2019 (ISA Bullion).

Who’s Actually Buying, and Why the List Matters

Poland has been the standout accumulator, adding 20.2 tonnes in February 2026 alone, another 11.2 tonnes in March, and 14 tonnes in April — extending a rapid buildup that has added more than 360 tonnes to its reserves since 2023 (BestBrokers). China’s central bank maintained consecutive monthly gold purchases for 19 straight months through May 2026, even though much of this buying goes officially unreported to the IMF — analysts widely believe the People’s Bank of China continues accumulating gold “off the books” (ISA Bullion).

China’s motivation appears explicitly strategic rather than opportunistic. Chinese net gold imports jumped to 317 tonnes in the first quarter of 2026 alone — nearly triple the prior quarter — while the People’s Bank of China’s own reported purchases accelerated from roughly one tonne per month through February to eight tonnes in April (J.P. Morgan Global Research). J.P. Morgan’s own analysts frame this as part of a long-term Chinese project to build gold reserves as a foundation for establishing the renminbi as a credible alternative reserve currency.

A World Gold Council survey found a striking 95% of central banks expect to increase their gold holdings in 2026, up from 81% in 2024 and just 52% in 2021 — a trajectory showing accelerating, not plateauing, institutional conviction (BlackRock).

The Part of the Story Most Coverage Misses: Not Everyone Is Buying

Here’s an angle that gets consistently underplayed: this isn’t a uniform global stampede into gold. Several countries, including Singapore, Jordan, Mexico, and the Solomon Islands, actually reduced their gold reserves in 2025 — Singapore in particular emerged as a notable seller, likely driven by portfolio rebalancing decisions and a desire to realize gains after gold’s historic surge, rather than any lack of confidence in the metal (BestBrokers). Germany, for its part, has reduced its gold holdings every year since at least 2002, though its 2024 sale of just 1.1 tonnes was the smallest annual reduction on record.

This nuance matters for anyone trying to build a genuinely accurate picture: the de-dollarization and gold-accumulation trend is heavily concentrated among specific emerging-market and non-aligned economies — not a universal central bank consensus. Understanding which countries are buying and why is more analytically useful than simply citing an aggregate global purchasing figure.

Where Forecasts Diverge — And Why the Spread Is So Wide

Institutional price forecasts for gold currently show a genuinely unusual spread. J.P. Morgan projects gold reaching $6,000 an ounce by the end of 2026, and potentially $6,300 by the end of 2027 (J.P. Morgan Global Research). Morgan Stanley’s more conservative 2026 forecast sits at $4,400 an ounce (Morgan Stanley), while State Street projects a range of $4,750 to $5,500, and DWS targets $5,400 by mid-2027 (Discovery Alert).

A spread exceeding $1,500 per ounce between the most bullish and most conservative institutional forecasts reflects a genuine, unresolved analytical disagreement — not just differing house styles. The bull case rests on the idea that central bank reserve diversification represents a structural, policy-level shift rather than opportunistic market timing, making it fundamentally different from prior gold cycles driven mainly by retail or momentum investors. The more cautious case notes that gold’s roughly 245% rally from September 2022 to January 2026 is the largest percentage advance in modern gold market history — and historically, rallies of that magnitude have eventually triggered significant, multi-year corrections (Discovery Alert).

The Under-Discussed New Buyer: Stablecoin Issuers

One of the least-covered developments in this entire gold story is the emergence of stablecoin issuers as a genuinely new category of gold demand. As crypto markets have matured, some stablecoin issuers have begun holding gold as part of their reserve backing strategy — a development BlackRock specifically flags as part of the “early stages” of a new demand wave that also includes central banks and the broader AI infrastructure buildout’s effect on institutional portfolio hedging behavior (BlackRock).

What This Means for Different Audiences

For everyday investors: Gold ETPs still make up only about 0.17% of total US private financial assets, remaining well below prior peaks seen in the early 2010s, while private wealth gold allocations globally sit roughly 50% below levels seen a decade ago (BlackRock). That suggests meaningful room for incremental Western retail and institutional demand to grow, even after the current rally, if the structural de-dollarization narrative continues to gain mainstream acceptance.

For businesses managing currency exposure: The scale and persistence of central bank gold buying is one of several signals (alongside Fed communication policy changes and fiscal deficit concerns) suggesting continued structural pressure on the US dollar’s long-term reserve currency dominance — a trend worth factoring into multi-year currency hedging strategies rather than treating as a short-term news cycle.

For portfolio allocators: The unusually wide spread between institutional forecasts is itself useful information — it suggests treating any single gold price target as a scenario input rather than a confident base case, and sizing gold allocations based on its role as a portfolio diversifier and inflation/geopolitical hedge rather than as a directional price bet.

The Bottom Line

The gold price chart is the story most people are watching. The reserve-composition shift is the story that actually matters for the long-term structure of global finance. Gold surpassing US Treasuries as the largest share of central bank reserves for the first time since 1996 is a genuinely historic threshold — one triggered specifically by the 2022 Russian asset freeze and now sustained by a broad, if uneven, cohort of emerging-market central banks pursuing deliberate de-dollarization strategies. Whether the price keeps climbing toward J.P. Morgan’s $6,000 target or cools toward Morgan Stanley’s more conservative range matters less, in the long run, than the structural fact that the world’s reserve managers have permanently changed how they think about gold’s role in the global financial system.