Overview
Jefferies warned that mounting doubts about the returns on US artificial intelligence capital expenditure could place 2026 as the apex of the AI spending boom that started over three years earlier. The investment bank said these questions began to surface last quarter and that scrutiny of AI capital spending is likely to intensify.
Financing and market implications
Jefferies emphasized that a notable trend is the increasing use of debt, rather than cash, to fund AI investments, with private credit playing a growing role in that financing mix. The firm highlighted the potential for a convergence between private credit exposures and the AI investment cycle. In addition, Jefferies pointed to last quarter's sell-off in US software stocks - which the bank attributes to fears over AI-related disruption - and said that episode carries negative implications not only for software valuations but also for private credit and private equity portfolios.
Geopolitical risks and market volatility
On geopolitical risks, Jefferies noted that the ongoing Iran conflict poses a stagflationary threat if the Strait of Hormuz remains closed. The bank observed that, despite dramatic developments in the Middle East, financial markets have been relatively calm to date. However, Jefferies warned that an uptick in Treasury bond volatility last quarter may foreshadow pressures for equities.
Asia power supply and fuel mix shifts
Separately, Morgan Stanley reported that reliable power availability is tightening across Asia as natural gas availability has been curtailed. The bank said power prices across the region have risen between 10% and 100% since February 2026. Morgan Stanley quantified Asia excluding China as relying on imported natural gas for 15% of its power needs.
The report noted a significant increase in coal generation, with Thailand, Taiwan, Korea and Indonesia preparing to raise output. Morgan Stanley also said that energy storage batteries combined with renewables have become 20% to 25% more competitive versus liquefied natural gas in Asia. Power spreads have widened across most Asian markets, the bank added, benefiting larger power companies, coal-based producers and grid operators.
Conclusion
Jefferies' assessment ties together rising doubt over AI capex returns, the growing role of debt and private credit in financing those investments, and heightened geopolitical and market volatility risks. At the same time, Morgan Stanley's findings on Asian power markets signal a changing fuel mix and cost dynamics that are reshaping regional power sector winners and losers.