Markets are no longer questioning AI.

They're questioning whether geopolitics will allow inflation to keep falling.

At the start of the week, the narrative looked increasingly fragile.

Technology leadership was becoming more volatile.

Investors rotated into defensive sectors.

Oil remained a key macro risk.

Inflation concerns were rebuilding as markets prepared for another round of central bank and inflation data.

That shift was visible across markets.

Gold and volatility moved higher.

Healthcare and consumer staples outperformed.

Many of the market's strongest AI and semiconductor names came under pressure.

Under normal conditions, that type of rotation suggests risk appetite is fading.

But it didn't last.

By Thursday, the narrative changed again.

Stocks surged.

Treasury yields fell.

The dollar weakened.

Oil dropped toward $86 per barrel.

The catalyst was not earnings.

It was geopolitics.

Renewed optimism surrounding a potential US-Iran agreement increased expectations that the Strait of Hormuz could eventually reopen and energy flows could normalise.

That immediately changed the inflation outlook.

Lower oil prices reduce inflation pressure.

Lower inflation pressure reduces pressure on central banks.

Less restrictive policy supports higher equity valuations.

• De-escalation expectations → lower oil → easing inflation concerns → lower yields → stronger equities

At the same time, AI remains an important part of the story.

Chipmakers rallied sharply as risk appetite returned, while continued investment into artificial intelligence reinforced long-term growth expectations.

But this week showed something important.

AI may still be driving leadership.

Geopolitics is determining whether that leadership can expand.

• Oil remains highly sensitive to developments in the Middle East
• Inflation expectations are responding directly to energy prices
• Central bank expectations remain tied to inflation
• Equities continue to follow changes in both

This is no longer simply an AI-driven market.

It is a market where geopolitics is influencing inflation, inflation is influencing policy, and policy is influencing risk appetite.

The question is no longer whether AI remains strong.

It's whether falling geopolitical risk can create the conditions for the next leg higher.