Oil Over $100, a War in the Middle East, and the Fed on Hold. Here's How to Protect Your Artificial Intelligence (AI) Portfolio in 2026.

Nobody who built an artificial intelligence-heavy portfolio during the hype years of 2024 and 2025 was thinking about oil prices, a potential war in the Middle East, or a Federal Reserve that refuses to cut rates. But here we are. Artificial intelligence (AI) stocks are largely selling off, and investors are anxiously checking headlines for what is next.

Let's look at what's actually happening. Once you understand it, you can better think about how to protect your portfolio. This isn't just the generic "rotate to defensive stock" advice you'll find everywhere else.

Image source: Getty Images.

Conflict in the Middle East escalates, hitting the world economy

On Feb. 28, 2026, U.S. and Israeli military operations against Iran effectively closed the Strait of Hormuz. That's because the Iranian Revolutionary Guard Corps warned the world that the waterway was unsafe for commercial navigation. Tanker traffic fell roughly 70%. Oil, which was trading around $65 a barrel, quickly moved toward $100 a barrel.

Two weeks later, the Federal Reserve held interest rates at 3.5%-3.75% by an 11-1 vote, and explicitly cited the Middle East situation as the reason for its wait-and-see posture. Fed Chair Jerome Powell acknowledged surging oil prices as a near-term inflation risk. The International Energy Agency (IEA) released strategic reserves, but experts estimated that the action would only buy roughly 16–22 days of supply. The U.S. also released a portion of its strategic reserves to help stabilize prices.

Market volatility has risen over the past four weeks, as traders react to the conflicting news coming from various governments and leaders in various economic sectors. This week, the Nasdaq Composite and the Dow Jones Industrial Average both entered correction territory (dropping more than 10% from recent highs).

If the conflict persists, the Fed's path narrows, not widens. The inevitable rise in inflation from a drawn-out conflict will force the Fed to raise interest rates rather than lower them to combat weakness in the jobs market. The worst-case scenario is the rise of stagflation, which makes the Fed's job that much harder.

This week, all international actors involved in the conflict have made peace claims and have expressed an intent to negotiate. Time will tell if what they say is happening actually happens. In the meantime, Brent Oil futures are trading around $110 a barrel as the week ends, with speculation that it could rise further.

How does this affect AI companies specifically?

For an AI portfolio, this global turmoil creates three simultaneous pressures:

1. Higher energy costs for data centers
2. Higher discount rates that crush long-duration growth stocks.
3. Broad market volatility that compresses multiples on anything speculative.

When all this drama happens, an investor's first instinct is to sell AI and buy oil majors, which oversimplifies the problem at hand. The better question is: Which AI-adjacent positions are structurally insulated from the macro pressures created by the conflict?

Here are two thoughts to consider:

1. Look at the physical infrastructure over software pricing. When the macro environment is unstable, the stocks that hold up best are those that already have physical capacity contracted. Modine Manufacturing (NYSE: MOD) is a good example of this, with a five-year backlog of data center cooling contracts. Hyperscalers don't stop needing cooling because oil went to $100 -- they've already signed the agreements. Modine's data center revenue grew 31% sequentially in Q3 fiscal 2026. That's a business being pulled by physical demand, not priced off sentiment.

2. No debt allows you to be more patient. A company like Clearfield (NASDAQ: CLFD) is a strong example here. Clearfield carries zero debt and $157 million in cash. Rising interest rates don't squeeze a balance sheet that has none. The company's NOVA platform is being pulled into AI data center deployments by actual customer demand. If rates stay elevated because the Fed stays on hold, Clearfield's clean balance sheet is a genuine advantage over more leveraged players.

There are AI portfolio holdings you might think about reducing

The most exposed positions in an AI portfolio right now are speculative growth names with no earnings, high capital intensity for their next phase of growth, and valuations that depend on rate cuts arriving soon. The Fed has essentially told you those cuts aren't coming as long as the Strait of Hormuz situation persists.​

I'm also watching data center REITs carefully. They're capital-intensive, rate-sensitive, and now face rising energy input costs. For example, data center real estate investment trusts (REITs) like Equinix (NASDAQ: EQIX) and Digital Realty (NYSE: DLR) sit right in the AI buildout but still behave like old‑school, leveraged utilities when rates and power costs spike.

It's time to get more selective about AI stocks

You don't have to abandon AI stocks to protect your portfolio right now.

You do have to get more selective about which part of the AI stack you own. The physical layer (think cooling, fiber, and contracted enterprise tooling) has a different risk profile than speculative software or GPU-dependent pure plays.​

The war in the Middle East is a macroeconomic event. AI infrastructure buildout is a decade-long structural one. Invest in the physical layer during times like this.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Digital Realty Trust, Equinix, and Modine Manufacturing. The Motley Fool has a disclosure policy.