Taking the market’s pulse: time to challenge conventional wisdom on France, inflation and AI?

Consensus concerns about France, inflation and an AI bubble are too one-sided to guide positioning, so investors should distinguish between vulnerable exposures and those with financial resilience.

• France faces worrying debt dynamics and political uncertainty ahead of next year’s election, but higher yields, political pragmatism elsewhere in Europe and the ECB’s crisis toolkit could support French government bonds.
• Structural inflation drivers include fiscal spending, the deglobalisation of manufacturing and energy-security priorities, yet yields may not rise smoothly if geopolitical conditions improve or tighter monetary and financial conditions weigh with a lag.
• Demand for computing still exceeds supply, and the author expects wider AI adoption to sustain that imbalance for years despite higher borrowing costs.
• Lower-rated companies with weaker profitability records are more exposed to tighter funding, while Alphabet, Amazon, Meta and Microsoft represent more than 75% of expected AI-related capital expenditure and have diversified businesses and high credit ratings.
• With prospective returns on invested capital above 25% for the leading AI spenders, higher borrowing costs alone are unlikely to stop their investment plans; the author therefore favours technology equities and sees opportunities in funding markets.

Takeaway: Investors should avoid treating consensus narratives as inevitable, remain open to lower yields in the near term, and favour AI companies able to finance continued investment, while recognising that structural inflation risks and weaker borrowers remain significant.