The Rotation Catalyst: Inference Economics Meets the “Prove It” Phase

The structural realities of inference economics and the recalibration of mega-cap compute spending have catalyzed a massive realignment in global equity markets. Throughout February 2026, the S&P 500 and the Nasdaq experienced visible volatility, driven primarily by an accelerated capital rotation away from “pure-play” AI software and growth stocks that dominated the previous two years. [1]

The selloff was directly linked to institutional investors reassessing the long-term durability of AI-driven capital expenditure trends—particularly in light of OpenAI’s dramatic compute budget cuts—combined with growing anxiety over the rich valuation multiples assigned to U.S. tech giants. The market is essentially demanding a “prove it” phase, waiting for clear, measurable ROI on the billions already invested in AI software deployments. [1][2]

Where the Money Is Moving

The broader market is not collapsing; rather, participation is broadening. Despite the headline drops in major indices, market breadth actually improved, with a majority of S&P 500 constituents advancing during this period. Capital systematically rotated into sectors poised to benefit from the physical realities of the AI buildout. [1]

Utilities and energy infrastructure surged by over 7.1% in a single week. As inference economics dictates that continuous power availability is the ultimate choke point for AI scaling, infrastructure decisions are increasingly driven by proximity to power grids rather than pure real estate considerations. Investors recognize that the physical energy grid, cooling systems, and power generation firms are the guaranteed beneficiaries of the AI expansion. [1]

Real estate and materials posted solid gains of 3% to 4%, reflecting a revitalization of the “old economy” supported by disinflationary trends (with CPI readings hitting lows of 2.4%) and expectations of lower interest rates. [1]

The International Surge: Capital Floods Asia and Emerging Markets

The geographic rotation was equally stark. Capital rapidly exited U.S. technology funds, recording approximately $1.42 billion in outflows, while flooding into Asian and emerging markets which recorded approximately $6.28 billion and $8.52 billion in inflows, respectively. [1]

International equity indices surged: the MSCI EAFE gained 1.9%, Japan’s market surged nearly 6%, Korea’s Kospi climbed 8%, and Taiwan’s TAIEX rose nearly 5%. [1]

Hedge funds heavily targeted Asian semiconductor foundries, industrials, and hardware manufacturers, viewing them as reasonably valued mechanisms to play the secondary effects of the global AI hardware supply chain. [1]