Investors are focusing on AI because the TAM keeps expanding from conversational to agentic to physical AI, requiring semiconductors.

The Middle East conflict creates uncertainty, but AI is a controllable, observable theme driving capital flows.

The key distinction is how high and for how long oil prices stay elevated. At $80-90/barrel, it's manageable and the 'new normal'.

If oil were at $100-120 for a long time, it would drive material cost inflation. But we are in the latter camp: the conflict will resolve, inventories are depleted, requiring a higher cost barrel, but $80-90 is fine. At Partners Group, only 8 out of 65 portfolio companies have commodity/oil exposure, and that is minimal and mitigable via cost pass-throughs.

Earnings season has been stellar: 80% of companies beating expectations, 10% surprise, with 10%+ earnings growth across the board, not just the Magnificent 7.

Companies can withstand oil inflation because they pass it through and have hedges. The message is economic strength.

The US has a multi-engine economy: consumer doing well despite higher gas prices, corporate strength, a 63% less oil-intensive economy, and AI capex driving 35-45% of economic growth.

This makes it hard to be overly pessimistic.

AI is a bifurcation story: some companies will be disrupted, others helped. Software is not dead; it has 75% gross margins and companies are investing in AI, not waiting to be disrupted.

90% of our portfolio companies have an AI initiative. The market threw out software with the bathwater, but that is not our view.

The cloud business (Microsoft, Google, Amazon) is projected to accelerate 23%+ this year and next. The big question for Microsoft is the software side, where AI tools like Claude and Grok are extensions, not replacements.

AI helps fetch data, create charts, and use Excel more efficiently, but it doesn't supplant the core software.

Key themes: energy efficiency, energy independence, and energy diversification. Higher oil prices benefit some portfolio companies in energy infrastructure.

Pipeline businesses in North America are well-positioned to capture volume upside near-term and benefit from the security of energy supply long-term.

Not overly concerned about public market valuations: for the Magnificent 7, it's earnings growth, not multiple expansion. For the rest, multiple expansion is justified by economic and earnings growth.

Private equity is trading at a 15-year low in valuations relative to public markets (12x EBITDA vs 15-16x), making the complement attractive.