IRAN

Back to boiling point: Oil rises as conflict resumes in the Middle East

The war is back on. Iran said today it had struck 85 U.S. sites in Bahrain and Kuwait, in the latest escalation of a fast-developing situation in the Gulf.

Those strikes came after U.S. forces struck targets in Iranian coastal areas yesterday and overnight. And that came after Iran fired on three tankers in the Strait of Hormuz, which Iran believed had not complied with its control of the passage. Kuwait, Qatar, and Saudi Arabia all condemned Iran for harassing their ships. The U.S. reinstated sanctions on Iranian oil sales. Iran’s foreign minister, Abbas Araghchi, said the U.S. was in "flagrant violation" of the memorandum of understanding. Live coverage from the BBC here.

The price of Brent crude oil spiked up from $72 per barrel yesterday to $78 this morning.

• Context: The ceasefire isn’t totally dead, yet. Both the U.S. and Iran will be reluctant to return to full-scale warfare. The fact that the U.S. struck Qeshm Island, Bandar Abbas, and Sirik—as opposed to Tehran or the regime’s nuclear development sites—is a signal that the Pentagon believes this round of fighting can be limited, if Iran allows traffic in the Strait to resume.
• The danger is that the U.S. and Iran will remain stuck in an endless round of retaliations that will render the Strait largely impassable for the foreseeable future. The conflict is now in its fourth month.

Traffic report: As this chart from Deutsche Bank shows, shipping in the Strait is far from normal:

President Trump is at the NATO summit in Turkey today, causing controversy

On the Iran ceasefire, Trump said, “as far as I’m concerned, it’s over,” but also added that negotiations would continue.

The president also criticized his allies for not handing over Greenland to the U.S. and for not being supportive enough in his assaults on Iran. The Europeans remain baffled by Trump’s obsession with the Arctic country and annoyed that Trump doesn’t appreciate the European bases that have been used to launch strikes on Iran or the minesweeping ships they have sent to the Gulf.

Elsewhere, solidarity: Leaders from Norway and Poland said they believed the U.S. would not pull troops out of Europe even though Trump threatened to do exactly that yesterday. Britain, France, and Germany pledged to spend more than $50 billion on long-range weapons.

THE MARKETS

Stocks are sharply down across the globe

Just as night follows day, the return of a “hot war” in the Middle East pushed up the price of oil and lowered the price of stocks in all major markets. The only surprise was that the “safe haven” of gold also declined, with the continuous futures contract for the metal down 2.24% today to $4,066.40 per troy ounce.

• S&P 500 futures were down 0.82% this morning. The index closed down 0.45% yesterday. 
• In Europe, the Stoxx 600 was down 1.69% in early trading and the U.K.’s FTSE 100 was down 1.55% before lunch.
• Asia: South Korea’s KOSPI was down 5.35%. Japan’s Nikkei 225 was down 2.11%. India’s Nifty 50 was down 2.23%. China’s CSI 300 was down 0.77%. 
• Brent crude was $77 per barrel this morning.
• Bitcoin was $61.9K.

Chart via TradingEconomics.com

SpaceX fell 7% yesterday despite being added to the Nasdaq 100 index, where it was expected to benefit from buying via index funds. The stock closed at $149.47 yesterday—above its IPO price of $135, but down from a peak of $201.80. 

Shares in the company rose a little in overnight trading, perhaps buoyed by a sheaf of analyst notes from J.P. Morgan, Deutsche Bank, and Morgan Stanley, who all rated the stock a buy. JPM initiated coverage with a price target of $225 by December 2027. That values the stock at 41x its estimated earnings per share in 2028, Doug Anmuth and his team at JPM said.

Chips are hot, hyperscalers are not: Wall Street's split verdict

There's a puzzle in tech stocks right now. Shares in chipmakers have soared while those of their AI hyperscaler customers have “lagged the S&P 500 Index by the most since 2022,” according to Lisa Shalett and her folks at Morgan Stanley. “Investors’ inclination to revalue the hyperscalers amid faster capex and limited investment-return visibility certainly seems rational, especially in favor of semiconductor makers enjoying extreme pricing power,” she said in a note. 

• Her recommendation? Be picky. “Especially in light of our view that semiconductors are meaningfully overbought.”

MORE FROM FORTUNE

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AI

Capex spending on AI is beginning to hurt profits at hyperscalers, ING says

Companies like Meta, Microsoft, Amazon, Oracle, and Alphabet are spending so much money—and raising so much debt—to build out their AI data centers that it will hurt their profitability, according to ING’s Jan Frederik Slijkerman. “Some companies such as OpenAI, Anthropic and Oracle are investing at a pace that exceeds incoming cash flows,” he said in a recent note.

Alphabet is a good example: “Its FY26 capex-to-sales ratio is expected to reach around 44%, while depreciation is projected to be 14% of sales. If depreciation charges rise over time to reflect this higher level of investment, profit margins could come under pressure, creating a headwind for earnings per share,” he said.

For Microsoft, those ratios are 35% and 14%, and for Amazon it’s 24% and 13%.

“The key questions for investors are whether these investments generate returns above the cost of capital and whether the anticipated revenue growth ultimately materialises,” he warns. This chart—showing corporate earnings before interest, taxes and depreciation minus capex—shows how capex is projected to pull down profits:

MUST-WATCH!

Two humans talk about what the robots might do next

Fortune AI Weekly is a new vodcast hosted by Fortune’s AI editor Jeremy Kahn and tech reporter Bea Nolan. Play it here. Each week they will cut through the noise and deliver expert analysis on the biggest developments shaping the future of tech.

In the first episode they talk about the lifting of export controls on Anthropic's Fable model and how U.S. AI policy remains a mess; whether there will be a big move towards open-source AI; whether the hype around Z.ai's GLM-5.2 model is real; and the news that OpenAI is in talks with the Trump administration about the government taking a 5% stake in the high-flying startup.

CHART OF THE DAY

Americans are now more likely to inherit companies than buy them

Choosing your parents wisely is becoming increasingly important in U.S. entrepreneurship. More businesses today are inherited than purchased, a reversal of the historic trend from just four years ago, according to Bank of America. “With the wealth transfer already underway, inherited businesses have accounted for a growing share of business ownership since 2022, reaching 23% in 2026 and surpassing the share of purchased businesses,” BofA’s Liz Everett Krisberg and David Tinsley said in a recent note.

NUMBER OF THE DAY

$20 billion

The estimated amount of money that will flow into the stock market after Trump Accounts get rolling, according to an estimate by Ohsung Kwon and his people at Wells Fargo.

THE FRONT PAGES TODAY

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OpenAI to Roll Out Top AI Model Globally After Limited Preview - Bloomberg

As Israel Loses Support in the U.S., Rahm Emanuel Criticizes Netanyahu - NYT

ONE MORE THING

One topic on which you should take Paris Hilton seriously

If you are of a certain age, you will remember Paris Hilton as the permanently tipsy, nightclubbing “it girl” of the early 2000s, perpetually being papped at nightclubs (by photographers she called herself). She epitomized the emptiness of “being famous for being famous.” 

Yet far fewer are familiar with what happened to her before she was famous, when her parents imprisoned her for 11 months inside the Provo Canyon School in Springville, Utah, a sort of boot camp for wayward teens.

While there, she alleges, staff members beat her, watched her shower, fed her unknown pills and locked her in solitary confinement without clothing—a sort of institutionalized child abuse, according to the AP. Hilton made a documentary about it and has successfully campaigned to get Provo and “schools” like it shut down.