diff --git a/app/src/search/ai_context_menu/styles.rs b/app/src/search/ai_context_menu/styles.rs
index 309c4425..5ef33f9f 100644
--- a/app/src/search/ai_context_menu/styles.rs
+++ b/app/src/search/ai_context_menu/styles.rs
@@ -3,3 +3,4 @@ pub const MARGIN_RIGHT: f32 = 8.0;
 pub const ESTIMATED_RESULT_HEIGHT: f32 = 24.0;
 pub const MENU_ITEM_HORIZONTAL_PADDING: f32 = 16.0;
 pub const MENU_ITEM_VERTICAL_PADDING: f32 = 4.0;
+pub const MENU_ITEM_HIGHLIGHT_CORNER_RADIUS: f32 = 8.0;
diff --git a/app/src/search/ai_context_menu/view.rs b/app/src/search/ai_context_menu/view.rs
index 67413af5..5333e92b 100644
--- a/app/src/search/ai_context_menu/view.rs
+++ b/app/src/search/ai_context_menu/view.rs
@@ -1287,8 +1287,11 @@ impl AIContextMenu {
             return self.render_no_results(app);
         }
 
+        let last_display_index = filtered_categories.len().saturating_sub(1);
         for (display_index, category) in filtered_categories.iter().enumerate() {
             let is_selected = display_index == self.state.selected_category_index;
+            let is_first = display_index == 0;
+            let is_last = display_index == last_display_index;
             let text_color = if is_selected {
                 theme.main_text_color(theme.accent()).into_solid()
             } else {
@@ -1347,11 +1350,20 @@ impl AIContextMenu {
             let accent_color = theme.accent();
             let accent_overlay_color = theme.accent_overlay();
 
+            let highlight_radius = Radius::Pixels(styles::MENU_ITEM_HIGHLIGHT_CORNER_RADIUS);
+            let highlight_corner_radius = match (is_first, is_last) {
+                (true, true) => CornerRadius::with_all(highlight_radius),
+                (true, false) => CornerRadius::with_top(highlight_radius),
+                (false, true) => CornerRadius::with_bottom(highlight_radius),
+                (false, false) => CornerRadius::default(),
+            };
+
             let category_clone_for_click = *category;
             let category_row = Hoverable::new(hover_state, move |hover_state| {
                 let mut container = Container::new(row)
                     .with_horizontal_padding(styles::MENU_ITEM_HORIZONTAL_PADDING)
-                    .with_vertical_padding(styles::MENU_ITEM_VERTICAL_PADDING);
+                    .with_vertical_padding(styles::MENU_ITEM_VERTICAL_PADDING)
+                    .with_corner_radius(highlight_corner_radius);
                 if is_selected {
                     container = container.with_background(accent_color);
                 } else if hover_state.is_hovered() {
diff --git a/app/src/terminal/input.rs b/app/src/terminal/input.rs
index c54779f5..5e5d1af8 100644
--- a/app/src/terminal/input.rs
+++ b/app/src/terminal/input.rs
@@ -3429,6 +3429,12 @@ impl Input {
         if let Some(ai_context_menu) = self.editor.as_ref(app).render_ai_context_menu() {
             let position = position_id_for_cursor(self.editor.id());
 
+            let y_anchor = if self.is_cloud_mode_input_v2_composing(app) {
+                AnchorPair::new(YAxisAnchor::Bottom, YAxisAnchor::Top)
+            } else {
+                menu_positioning.completion_suggestions_y_anchor()
+            };
+
             stack.add_positioned_overlay_child(
                 ai_context_menu,
                 OffsetPositioning::from_axes(
@@ -3442,7 +3448,7 @@ impl Input {
                         &position,
                         PositionedElementOffsetBounds::Unbounded,
                         OffsetType::Pixel(0.),
-                        menu_positioning.completion_suggestions_y_anchor(),
+                        y_anchor,
                     ),
                 ),
             );
diff --git a/app/src/terminal/input/agent.rs b/app/src/terminal/input/agent.rs
index b416e7b7..f8f64238 100644
--- a/app/src/terminal/input/agent.rs
+++ b/app/src/terminal/input/agent.rs
@@ -333,7 +333,7 @@ impl Input {
         let menu_positioning = self.menu_positioning(app);
         let model = self.model.lock();
 
-        let mut stack = Stack::new().with_constrain_absolute_children();
+        let mut stack = Stack::new();
 
         // Apply the V2 gutter symmetrically (left + right) so the floating
         // input keeps equal breathing room on both sides as the pane shrinks.