A Sleepy Stock that Can Wake Up Your Portfolio
In over 35 years of investing, I have rarely encountered a company in such a unique – and frustrating – position as Harmony Biosciences (“Harmony” – HRMY). As a shareholder through my firm, Sidoxia Capital Management, I approach this analysis with a dual lens: as an investor seeing immense value, and as a fiduciary who expects corporate leadership to act in the best interest of its owners.
While Harmony’s executive team has executed brilliantly on its clinical mission, they are currently failing their fiduciary duty regarding capital allocation. Here is why Harmony is a “Diamond in the Rough” that needs a wake-up call.
Harmony Biosciences Overview – A Rare Disease Powerhouse
Harmony is a neuroscience-focused company targeting rare and underserved conditions such as narcolepsy, Prader-Willi Syndrome, and certain rare epilepsies—areas where treatment options are limited or nonexistent.
Today, the vast majority of revenue is driven by narcolepsy, a neurological disorder that disrupts sleep-wake cycles and leads to excessive daytime sleepiness and sudden sleep attacks. While approximately 135,000–200,000 Americans are diagnosed, the true number is likely higher due to underdiagnosis and misdiagnosis.
Harmony’s flagship drug, WAKIX (pitolisant), is on track to surpass $1 billion in annual revenue in 2026, achieving blockbuster status. Importantly, WAKIX is the only FDA-approved narcolepsy treatment that is not a controlled substance as defined by the U.S. Drug Enforcement Administration (DEA), providing a meaningful competitive advantage over alternative therapies.
Significant Growth Beyond WAKIX
Harmony’s long-term opportunity extends well beyond narcolepsy. The company is leveraging the pharmaceutical compound behind its franchise drug WAKIX (pitolisant) to expand and diversify its revenue base into additional CNS (Central Nervous System) indications, with five ongoing Phase 3 registrational programs (see below):
- Pitolisant HD (High Dose) – Idiopathic Hypersomnia (IH) – potential $1.5 billion – $2.0 billion market with possible FDA submission for approval in 2027.
- Pitolisant HD (High Dose) – Narcolepsy – potential to accelerate the growth of $1 billion WAKIX franchise (2026 estimate) by offering enhanced efficacy for fatigue. FDA submission for approval of Pitolisant HD could come in 2027.
- Pitolisant – Prader-Willi Syndrome (PWS) – There are an estimated 15,000–20,000 people in the U.S. with PWS. Over half of these targeted patients suffer from EDS, which is effectively treated with Pitolisant. PWS has a potential of reaching $300 million – $500 million in revenue and receiving FDA submission for approval during the 2nd half of 2026.
- EPX-100 (Clemizole HCl) – Dravet Syndrome (epilepsy with onset at infancy) – expands Harmony into a potential $800 million global market by 2030 with possible FDA submission for approval in the 1st half of 2027.
- EPX-100 (Clemizole HCl) – Lennox-Gastaut Syndrome (LGS) (epilepsy with multiple seizure types) – opens the company to a potential $1 billion market globally.
Collectively, this pipeline has the potential to generate billions in incremental revenue.
A Diamond in the Rough
There are many ways to value a stock, but one common approach is to compare a company’s price-to-earnings ratio (P/E) to that of the S&P 500. Generally, stocks trading below the market’s average P/E are considered cheap, while those above it are viewed as more expensive.
Harmony shares currently trade at approximately 8x trailing twelve-month earnings and 7x its 2026 earnings forecast. By comparison, this represents roughly a -70% discount to the average S&P 500 stock. Based on these metrics, Harmony appears dramatically undervalued—assuming the company’s fundamentals remain intact.
Of course, valuation must be considered alongside growth and execution. On that front, management continues to emphasize strong underlying performance.
And the results support that claim. In less than three years, CEO Dr. Jeffrey Dayno has grown revenue by approximately 74%, from roughly $500 million in April 2023 to over $860 million today, with expectations to exceed $1 billion in annual sales by the end of the year.
But wait, there’s more. The balance sheet tells a similarly compelling story. Over that same period, Harmony’s net cash position (gross cash minus debt) has increased from approximately $201 million to $719 million, even after completing two acquisitions totaling about $69 million (Zynerba and Epygenix). During this time, quarterly revenue growth has averaged roughly +23%, while cash has more than tripled, despite the acquisitions.
What’s more, Harmony’s cash profitability is equally impressive. In 2025, Harmony generated a 40% free cash flow margin, meaning $0.40 of every $1 of revenue converted into free cash flow. That level of efficiency would rank among the top two percent of companies in the S&P 500, placing Harmony alongside some of the most profitable behemoths in the market, including NVIDIA Corp.
Which brings us to the key question: If the stock is this inexpensive and the fundamentals are this strong, why isn’t the company aggressively repurchasing its own shares hand-over-fist? To date, management has not provided a clear or credible answer to this question.
What is the Downside to Harmony?
All this fundamental strength and financial momentum sounds like great news for shareholders—but where’s the risk and bad news? Regrettably, despite strong execution under CEO Dr. Jeffrey Dayno over the past three years, the stock is down approximately -14% (from ~$32 to ~$28 per share).
If everything is going so well, why have investors been so spooked recently? The primary concern centers on potential generic competition for WAKIX, the company’s key drug. To Harmony’s credit, it has already settled litigation with six of seven generic challengers, but one holdout—AET Pharma—has taken the case to trial. Some Wall Street analysts and investors believe the judge may rule in favor of AET, which contributed to a sharp decline in the stock last month.
If Harmony loses, WAKIX’s patent protection—currently expected to extend through 2030—could be materially weakened, potentially allowing generic competition to enter the market as early as late 2026 or early 2027, depending on the timing of the ruling and subsequent developments.
Fear not, says management. They remain confident in their defense strategy. As CEO Dr. Dayno stated, “Pitolisant GR will extend the WAKIX franchise and our leadership in narcolepsy as a line extension of WAKIX with its broad clinical utility. We are on track for NDA submission in Q2 this year with a target PDUFA date in Q1 2027.”
Management believes this next-generation formulation, Pitolisant GR, could significantly mitigate—or even eliminate—the impact of generic competition. Unlike WAKIX, which faces potential patent challenges, Pitolisant GR is expected to have patent protection through 2044.
If the timeline holds, the company expects a substantial portion of WAKIX patients to transition to GR, reducing the impact of any generic entrants. Additionally, even in a worst-case scenario where AET prevails, the financial risk associated with launching an “at-risk” generic—particularly if Harmony were to win on appeal—could be significant enough to deter entry and easily push AET towards a settlement with Harmony.
Am I Missing Something?
When a stock trades at such an egregiously low valuation, I inevitably ask myself, “Am I missing something?” If management is sitting on its hands doing nothing, perhaps Harmony’s fundamental outlook is worse than they are leading investors to believe. If management is unwilling to deploy even a portion of its inefficient, over-bloated cash hoard toward share repurchases – especially with the stock arguably at its cheapest level in history – why should investors commit their hard-earned capital to what could be a sinking ship?
Is it possible that management lacks confidence in the Pitolisant GR NDA data, or that the Q2 NDA timeline could slip? If so, and if AET prevails in court, Harmony’s entire $1 billion franchise revenue base could be at risk.
Management has dismissed these concerns and continues to insist that everything is on track. If that’s truly the case, then – with a clear line of sight into the company’s prospects – Harmony should be aggressively buying back its stock if the outlook is as strong and rosy as they claim.
Actions Speak Louder than Words
According to management, Harmony’s fundamentals remain robust. Not only does Harmony have five late-stage, phase three indications in the pipeline, it also claims to have a near bullet-proof generic competition protection strategy. Yet, with the stock down around -33% from its 52-week high, it is difficult to justify why management is not forcefully repurchasing shares at prices that are currently highly accretive to EPS.
I have raised this issue with senior management multiple times, but unfortunately my concerns have fallen on deaf ears. I’m hardly alone – other investors have voiced similar frustrations but inaction remains the default stance of management. The company’s response to this elephant in the room remains perplexing.
On the most recent fourth quarter conference call with investors, CFO Sandip Kapadia stated, “Business development is a high priority, and our intention is to deploy capital to expand our pipeline and commercial portfolio.” CEO Dr. Jeffrey Dayno echoed this sentiment, emphasizing a “commitment to generate even greater value through the pursuit of smart business development opportunities.”
It’s great that Harmony “intends” to deploy capital and “pursue” opportunities, but the fact remains, Harmony effectively has not devoted a penny over the last two years to capital deployment, and the company has spent next-to-nothing on capital deployment since the company’s IPO (Initial Public Offering) in August 2020.
Meanwhile, the company’s massive net cash balance – currently $719 million – is rapidly expanding by more than $100 million+ per quarter and is on track to swell to $1 billion this year. By the end of 2026, cash could represent as much as two-thirds of Harmony’s total market value, particularly if the share price remains depressed or declines further.
Walking and Chewing Gum
Can Harmony walk and chew gum at the same time? In other words, can the company allocate a portion of its gigantic cash balance toward a monumentally accretive share repurchase program while simultaneously pursuing business development (M&A – Mergers & Acquisitions) opportunities? The short answer is yes.
In fact, Harmony did exactly that in 2023 and 2024 – deploying nearly half of its cash toward share buybacks while ALSO completing two acquisitions that contributed to its expanding pipeline of promising new indications.
Management argues it’s currently evaluating a broad list of acquisition targets. However, one could reasonably contend that Harmony will be hard-pressed to find opportunities more attractive than its own stock. The bar is exceptionally high: identifying highly profitable companies with similarly robust pipelines, that are also trading at a steep discount and offering comparable growth characteristics.
By comparison, Harmony’s own shares appear to trade at roughly a -70% discount to the market, with approximately 50% of its market capitalization in cash, while delivering ~20% top-line growth, and securing a deep pipeline of five Phase 3 programs. Under these conditions, it seems like Harmony buying back their own stock is a no-brainer.
Where Is the Board and Why Are They Not Acting?
This is a question I’m asking, and I hope the board will answer the capital allocation question more thoughtfully. Ideally, the response will come in the form of a material share repurchase (i.e., action).
For those curious, I have identified the distinguished group of Harmony board members, and I intend to pursue an explanation relating to the board’s inaction. Here are Harmony’s current board members:
- Jeffrey S. Aronin (Executive Chairman) – Founder and CEO of Paragon Biosciences.
- Jeffrey M. Dayno, MD (President, CEO & Director) – Former CMO of Harmony; Board-certified neurologist.
- Peter Anastasiou (Independent Director) – CEO of Capsida Biotherapeutics; former Lundbeck executive.
- Antonio Gracias (Independent Director) – Founder/CEO of Valor Equity Partners and Director at Tesla.
- Mark Graf (Independent Director) – Former CFO of Discover Financial Services.
- Ron Philip (Independent Director) – CEO of Orbital Therapeutics and former CEO of Spark Therapeutics.
- Juan Sabater (Independent Director) – Partner at Valor Equity Partners and former Goldman Sachs MD.
- Gary Sender (Independent Director) – Former CFO of Nabriva Therapeutics and Shire PLC.
- Linda Szyper (Independent Director) – Former COO of McCann Health; pharmaceutical sales veteran.
- Andreas Wicki, PhD (Independent Director) – CEO of HBM Healthcare Investments.
I’m not sure whether the board is asleep at the switch, but it has a clear fiduciary duty to allocate capital efficiently and maximize shareholder value. Allowing the balance sheet to become excessively bloated while taking no meaningful action falls short of that responsibility. The company needs to act.
As Harmony’s share price remains stagnant and under pressure, management and the board continue to irresponsibly let cash accumulate. Net cash now represents approximately 45% of the company’s market capitalization. If Harmony were in the S&P 500, this would place it among the top 1% of companies by cash as a percentage of market value – all while trading at roughly a -70% discount to the broader market.
We remain long-term shareholders, but there are only two plausible explanations. Either management is correct, and this represents a generational buying opportunity—or the company knows something investors do not, which may explain the lack of action and the continued buildup of cash.
Bottom line: assuming a successful defense against generic competition and a conservative rollout of the pipeline—including Pitolisant GR and Pitolisant HD—$7 in EPS by 2030 at a 22x multiple implies a $154 price target, or roughly +450% upside from today’s ~$28 share price.
Harmony may be a sleepy stock today, but it has all the ingredients to wake up your portfolio. While management and the board have been slow to act and have yet to fully meet their fiduciary responsibility on capital allocation, I remain optimistic that they will ultimately do the right thing. By deploying capital more effectively – most notably through a meaningful share repurchase at today’s historically attractive valuation – Harmony has the opportunity to awaken significant shareholder value and live up to its full potential.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in HRMY, NVDA, TSLA, GS, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in DFS, HBMN, HLUYY, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
The SaaSpocalypse Has Arrived…Or Has It?
Well, the new month has started with a bang. Financial markets have not only experienced a bang from another military strike on Iran, but also an explosion of AI paranoia. As hundreds of billions of AI investment dollars flood into the economy, fears are intensifying that the AI displacement of workers could have a detrimental impact on the economy and financial markets.
The Monthly Scorecard
It was a mixed performance in the market last month. Geopolitical headlines surrounding Iran and the Middle East are currently front and center, but under the surface, the real story isn’t just geopolitics—it’s a growing investor anxiety around artificial intelligence and its disruptive potential. Here’s what happened last month:
- S&P 500: -0.9%
- Dow Jones Industrial Average: +0.2%
- NASDAQ: -3.4%
The “SaaSpocalypse” and the Tech Identity Crisis
Software stocks are currently under assault, plunging -9.7% for the month and a staggering -22.8% for the start of the year (as measured by the IGV iShares Software index). Analysts are calling this the “SaaSpocalypse” (Software as a Service)—a phenomenon where the market fear is that AI is “eating” software companies.
High-profile casualties have added fuel to the fire. IBM, for example, suffered its worst trading day in 25 years, dropping -13% in a single day. Concerns came to light that new AI agent coding tools like Anthropic’s Claude Code could threaten IBM’s legacy dominance in COBOL-based mainframe systems.
Paranoia vs. Reality
This “AI Paranoia” has spread far beyond Silicon Valley, infecting industries like transportation, banking, travel, real estate, and food delivery. Two major catalysts fueled this fire:
The Citrini Report: A viral, dystopian report from described an “avalanche” of white-collar firings (see chart below). The report argues that while the government may try to intervene with stimulus, it “won’t change the fact that an AI Claude agent can do the work of a $180,000 product manager for $200/month.”
Source: Citrini Research
- Corporate Reductions: High-profile cuts have validated these fears. Block Inc. (led by Jack CEO Dorsey, former Twitter Founder) announced it is slashing 40% of its workforce due to AI advancements, while Amazon recently eliminated 30,000 white-collar positions (10% of its corporate staff).
However, there is a silver lining to that perspective. While software jobs have flattened since ChatGPT arrived in late 2022, we have yet to see the “cliff dive” in total employment that many predicted. In fact, employment (165 million employed) and labor force (172 million) figures are near record levels, so we have not seen AI kill the economy quite just yet (see chart below).
Source: Yardeni Research and Bureau of Labor Statistics
The Great Rotation: Looking for “HALO”
As investors try to decipher the winners and losers, they are migrating away from technology and rotating into HALO stocks (Hard Asset, Low Obsolescence). These companies are seen as less susceptible to AI disruption. Evidence of this shift is clear in the outperformance of value, small-cap, and mid-cap stocks. Notably, the Dow Jones Industrial Average, an index heavy with hard asset exposure, just posted its 10th consecutive month of gains despite the broader technology stock volatility.
A Massive Bet on the Future
Despite the “bubble” murmurs, the AI juggernauts are doubling down. OpenAI just closed the largest private financing in history, raising $110 billion—including $50 billion from Amazon, $30 billion from NVIDIA, and $30 billion from SoftBank. The demand for compute and data centers remains insatiable, supported by the $700 billion being spent by the large hyperscalers (Amazon, Alphabet-Google, Microsoft, and Meta Platforms) this year.
Geopolitical and Legal Headwinds
Adding to the month’s complexity are external shocks:
- Middle East Tensions: Military strikes on Iran recently killed the Iranian Supreme Leader, Ali Khamenei, and other key leaders, injecting significant geopolitical risk.
- Tariff Uncertainty: The Supreme Court recently ruled against the IEEPA tariffs instituted by the Trump administration. While temporary alternatives are in place, the markets are waiting for a permanent solution to work through the courts.
Resilience in the Face of Technological Change
It is easy to get lost in the dystopian narrative, but history offers a more hopeful guide. Technology has been replacing human workers for centuries—from the looms of the Industrial Revolution to the tractors of the Agricultural Revolution – see chart below (1790 – 2025). In every instance, while specific roles were displaced, new industries emerged that not only soaked up the unemployed but expanded the labor force into areas we couldn’t have previously imagined (see also The Fallacy Behind Technological Innovation).
The reality today is that the economy remains remarkably strong. Employment data is resilient, labor force participation is near record levels, and corporate profits are breaking out to new all-time highs. Furthermore, the ISM Manufacturing PMI (Purchasing Managers Index) recently spiked to 52.6, signaling an expansion in a sector that had been declining for years (see chart below).
Source: Trading Economics
We are not witnessing the end of work, but rather a high-speed evolution. As we’ve seen before, the human capacity for innovation and adaptation usually outruns the machines.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Mar. 2, 2026). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in AMZN, GOOGL, META, MSFT, NVDA, certain exchange traded funds (ETFs), but at the time of publishing had no direct position in IBM, XYZ or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Scary Headlines Abound as Dow Knocks on 50-Thou…What Now?
The Dow Jones Industrial Average first crossed the 40,000 milestone in mid-2024 (see Investing Caffeine – Dow 40,000), yet barely 18 months later, the index has notched another record closing high and is now knocking on the door of 50,000.
For the most recent month:
Dow Jones: +1.7%
S&P 500: +1.4%
NASDAQ: +1.0%
Remarkably, as we enter 2026 flirting with these major milestones, this marks the third consecutive year of double-digit gains across the major stock indices—despite what feels like a nonstop barrage of alarming and often unimaginable headlines.
And that’s the key point.
A World on Fire… According to the Headlines
• Greenland Takeover Threat: Over a year ago, President Trump declared U.S. control of Greenland an “absolute necessity” for national security amid rising Russian and Chinese Arctic influence. Last month, tensions escalated when a proposed tariff regime—starting at 10% and rising to 25%—was announced against Denmark and several European allies. Markets ultimately breathed a sigh of relief after tariffs and military threats were reversed following the announcement of a negotiated framework.
• Venezuelan Invasion: In early January, U.S. forces executed a high-precision raid of the Venezuelan capital of Caracas in the middle of the night, when President Nicolas Maduro was successfully extracted without any Americans killed. Maduro now faces narcoterrorism and corruption charges in federal court in Brooklyn. Meanwhile, Secretary of State Marco Rubio has spearheaded a plan that prioritizes the rebuilding of Venezuela’s oil infrastructure by seizing tankers and millions of barrels of sanctioned crude oil to finance the reconstruction.
• ICE Protests in Minnesota Turn Deadly: Immigration protests in Minnesota escalated last month, resulting in two high-profile fatalities as demonstrators clashed with federal ICE authorities (Immigration and Customs Enforcement).
• Government Shutdown (Again): A partial government shutdown began January 31, 2026, after six of twelve appropriations bills expired. Political gridlock—particularly surrounding DHS (Department of Homeland Security) and ICE funding—has once again sidelined Washington as lawmakers attempt to negotiate a resolution. House members gather back from recess on February 2nd in an attempt to end the budget standoff.
• Federal Reserve Leadership Uncertainty: Fed Chair Jerome Powell’s term expires in May. President Trump has nominated Kevin Warsh as his successor, criticizing “Too Late” Powell’s pace of rate cuts for years. Warsh, a former Fed Governor during the 2008 Financial Crisis, is widely respected but faces scrutiny regarding Fed independence, in part because he shares the President’s view that interest rates should be lower in the current environment. His Senate confirmation remains pending.
• Middle East Tensions in Iran: Following last year’s U.S. strikes on Iranian nuclear facilities, tensions have reignited amid reports of mass protester killings by Iran’s IRGC (Islamic Revolutionary Guard Corps). The U.S. has since mobilized substantial regional military assets, signaling possible intervention in support of regime change.
• Supreme Court Tariff Ruling Looms: The Supreme Court has yet to rule on the administration’s use of the International Emergency Economic Powers Act (IEEPA) of 1977 to impose sweeping global tariffs. A ruling against the government could trigger over $100 billion in retroactive refunds. The next decision window is February 20, 2026.
• U.S. Dollar Weakness: After declining roughly 10% in 2025, the dollar continued to weaken in January 2026 (-1%) – see chart below. Precious metals surged alongside the move—gold up +12% and silver +17% for the month—despite sharp end-of-month pullbacks.
• Cryptocurrency Collapse: Bitcoin has fallen roughly -38% from its October 2025 peak near $126,000 to about $78,000, once again challenging its “digital gold” and “store-of-value” narrative.
• Ongoing Ukraine War and Gaza Conflict: The Russia-Ukraine conflict drags into its fifth year, while violence persists in Gaza despite a loosely agreed ceasefire, with casualties continuing to rise.
Source: Yardeni Research
Don’t Believe the Hype
That’s a staggering amount of uncertainty. So how has the stock market responded?
By soaring.
S&P 500 Returns:
2023: +24.2%
2024: +23.3%
2025: +16.4%
The verdict on 2026 remains unwritten—but so far, the trend remains intact.
For most of my professional career, I’ve urged investors to tune out fear-driven media narratives (see Turn Off the TV). History repeatedly shows there is little correlation between scary headlines and long-term stock prices.
In fact, I’ve argued before that bad news can often be good news for markets (see Bad News is Good News). Conversely, in 2022 we witnessed strong employment and solid economic growth—yet both stocks and bonds suffered significant losses.
What Actually Moves Markets (“The Stool”)
Rather than reacting to noise, investors should focus on what truly drives long-term returns. At Sidoxia Capital Management, we emphasize four foundational forces (see Don’t Be a Fool, Follow the Stool):
1. Profits
2. Interest Rates
3. Sentiment
4. Valuations
These four legs of the “Sidoxia Stool” exert far more influence over market direction than daily headlines ever will.
While the current environment presents a mixed picture across these factors, monitoring them—rather than reacting emotionally to media narratives—offers investors far greater clarity on where markets may head next. And whether the Dow reaches 50,000… or 100,000 likely won’t be decided by headlines. It will be decided by fundamentals.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Feb. 2, 2026). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Separating Hype from Reality: Sidoxia 2026 AI and Market Update – Wednesday 1/28/2026 at 12:00pm
Cut through the noise surrounding artificial intelligence and learn how AI is transforming investment strategy. Wade Slome, CFA, CFP, and founder of Sidoxia Capital Management, provides his 2026 market outlook, highlighting key economic trends, opportunities, and risks shaping the year ahead.
Green Lights Everywhere… But Is It Time to Tap the Brakes?
The economic and market fundamentals appear to be flashing green lights everywhere. Growth is strong, inflation has cooled, and financial conditions have eased. Yet even with clear skies and open roads, experienced drivers know conditions can change quickly. It may not be time to slam on the brakes—but it could be time to keep a foot hovering nearby.
After the Federal Reserve aggressively applied the brakes in 2022 with seven rate hikes—taking the federal funds rate from 0.25% to 4.50%—the stock market declined nearly 19%. Since rates peaked at 5.50% in 2023, the Fed has cut rates six times, lowering them by a cumulative 1.75% to approximately 3.75%. Those cuts have helped pave the way for a smoother ride, providing a meaningful tailwind to equity markets.
That said, the most recent quarter-point cut produced mixed results. Last month, the Dow Jones Industrial Average rose +0.7%, the S&P 500 was essentially flat at –0.1%, and the NASDAQ lagged with a –0.5% decline.
Navigating the Winning Streak
We have encountered a few economic speed bumps along the way—tariffs and geopolitical events earlier in 2025, for example—but once investors realized those tariffs were more bark than bite (as I discussed previously in Tariff Sheriff), stocks resumed their impressive run. The market has now delivered three consecutive years of strong returns: 2023 (+24%), 2024 (+23%), and 2025 (+16%).
With these strong gains, today’s environment can feel like cruising on a national highway—clear roads, sunny skies, cruise control engaged, and little traffic in sight. The momentum could continue. Three strong years in a row do not rule out a fourth or fifth. In fact, the late 1990s offer a powerful reminder: from 1995 through 2000, the stock market averaged approximately 29% annual returns through the March 2000 peak (see table below). However, once the technology bubble burst, it took more than 13 years for the market to reclaim new year-end highs.
Source: Gemini
After more than three decades of investing, one lesson remains clear: trees can grow for years—but they do not grow to the sky forever. Bull markets often last longer than expected, but they eventually end.
Why the Forecast Looks Rosy
Several factors are supporting today’s strong market backdrop:
- Strong Economic Growth: Third-quarter GDP growth of 4.3% marked the fastest expansion in two years (see chart below)
Source: Trading Economics
- AI-Driven Productivity: GDP growth has remained robust even as unemployment has risen from 4.0% earlier in the year to approximately 4.6% today. Growth outpacing employment is the definition of productivity, and the proliferation of artificial intelligence is accelerating this trend. Large companies such as Amazon.com (AMZN), Microsoft (MSFT), Alphabet-Google (GOOGL), and Meta Platforms (META) have reduced headcount significantly by tens of thousands in recent years while revenues and profits continue to surge (see also Mag 7 Takes Cash to the Bank).
Source: Trading Economics
- Taming Inflation: Crude oil prices have fallen roughly 20% over the last year, and Owner’s Equivalent Rent (which makes up about one-third of CPI inflation) has been steadily declining—both positive signals for inflation pressures ahead (see chart below).
Source: Calafia Beach Pundit
- Lapping Tariffs: Tariffs represented a one-time price increase. As we move into 2026, their inflationary impact should diminish as those increases roll off.
- Narrowing Budget Deficit: While debt and deficits remain headline risks, federal spending has been flat over the past year while revenues have increased roughly 10%, according to Scott Grannis (see chart below).
Source: Calafia Beach Pundit
- Tax Cuts & Higher Refunds Ahead: Many provisions of the One Big Beautiful Bill (OBBB) will be felt more fully in 2026, including 100% bonus depreciation for businesses, higher SALT deduction caps, increased standard deductions, no tax on tips or overtime, and a higher Child Tax Credit (CTC). Collectively, these could result in refunds up to $1,000 higher per individual.
Together, these factors could support continued market strength into 2026. But weather, road conditions, and markets can change quickly.
Reasons to Keep Your Foot Near the Brake Pedal
While the road looks smooth, several caution signs deserve attention:
- Elevated Valuations: Forward price-to-earnings ratios (P/E) are at their highest levels since the late 1990s, outside of the brief post-COVID period. (see chart below).
Source: Yardeni Research
- Animal Spirits Are Back: Speculation has expanded well beyond traditional markets. Prediction platforms such as Kalshi, Polymarket, FanDuel, DraftKings, Robinhood, Coinbase, and others now allow bets on everything from political outcomes to economic data—further evidence of speculative behavior.
- Gold and Silver Speculation: Despite a relatively stable U.S. dollar over the past six months, gold rose +64% and silver catapulted +145% in 2025—moves difficult to justify by fundamentals alone (see chart below).
Source: MarketSurge
- Investor Complacency: The Volatility Index (VIX), often called the “fear gauge,” currently hovers near 15, well below its long-term average of 20. Historically, true fear doesn’t surface until readings exceed 25.
- Market Concentration: The “Magnificent 7” stocks represent roughly 1% of the companies in the S&P 500 but account for about 37% of the index’s weighting (see Mag 7 Takes Cash to the Bank)—a concentration reminiscent of the late 1990s. When leadership narrows, downturns can be sharper.
The Sidoxia View
At Sidoxia Capital Management, we have implemented all-weather, time-tested strategies through decades of both bull and bear markets. We believe diversification and disciplined risk management are essential—not fruitless prediction attempts. Rather than attempting to time short-term market moves, we focus on adapting portfolios to changing conditions and navigating inevitable financial potholes.
We don’t always get it right, but over the long run, this approach has allowed us to earn and retain the trust, loyalty, and confidence of our clients.
After three years of strong performance, it’s easy to assume clear roads and blue skies will continue indefinitely. But history teaches us that the most dangerous moments often occur when confidence is highest. This is not a call to abandon the journey—only a reminder to stay alert. When markets accelerate this quickly, discipline, diversification, and risk management matter more than ever.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Jan. 2, 2026). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in MSFT, GOOGL, AMZN, META, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in ORCL or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
As We Give Thanks, AI and Mag 7 Take Cash to the Bank
Market volatility resurfaced last month as speculation intensified over whether an AI bubble may be forming—and potentially bursting. Yet despite the jitters, equity markets remain solidly positive for the year (S&P 500 +16.5%, NASDAQ +21.0%, Dow +12.2%) – see S&P 500 chart below. A significant portion of the gains have been powered in large part by ongoing strength in the Magnificent 7. Standouts such as NVIDIA (+31.8%) and Alphabet (+68.1%) have been instrumental in carrying the broader indices higher.
Even with these sizable year-to-date gains, memories of the 2000 Tech Bubble and 2008 Financial Crisis resurfaced and prompted investors to temporarily tap the brakes. Mid-month, the NASDAQ retreated roughly -9% from its October peak. After a month-end bounce, the S&P 500 finished essentially flat (+0.1%), the NASDAQ slipped -1.5%, and the Dow eked out a +0.3% increase.
OpenAI and the $1.4 Trillion Question
At the center of the AI controversy sits OpenAI, parent of the three-year-old technology toddler, ChatGPT (Generative Pre-trained Transformer), which now boasts more than 800 million global users (see chart below). The company reportedly runs at a $20 billion annual revenue pace, yet faces difficult questions about how it intends to fund its staggering $1.4 trillion AI infrastructure commitments.
Those concerns came to a head when tech investor Brad Gerstner pressed CEO Sam Altman on his podcast last month. Instead of answering how OpenAI plans to underwrite such an enormous buildout, Altman childishly shot back defensively:
“If you want to sell your shares, I’ll find you a buyer.” (See clip here — or full interview here)
Source: Digital Information World
OpenAI is a key player, but just one component in the vast—and rapidly expanding—web of global AI infrastructure. Gartner, a global research and advisory firm, forecasts $2 trillion of AI investment in 2026, while NVIDIA CEO Jensen Huang recently said:
“Over the next five years, we’re going to scale into… effectively a $3 to $4 trillion AI infrastructure opportunity.”
These provocative “Is this a bubble?” questions make for great headlines, but to truly evaluate AI sustainability, it’s wise to follow the classic Watergate guidance from of All the President’s Men character, Deep Throat (FBI Associate Director, Mark Felt), who tells journalist Bob Woodward to “follow the money,” if he wants to get to the bottom of the Watergate scandal.
The same principle applies to investors who follow the money – the picture looks very different from past bubbles.
Forget Pets.com—Today’s AI Buildout Is Being Funded by Cash-Rich Titans
Unlike the flimsy, profitless internet startups of the late 1990s—companies that raised billions based on “eyeballs” and cocktail-napkin business plans—the current AI buildout is being financed largely by profitable cash-generating giants.
Yes, some firms like Oracle (ORCL) are leaning on debt financing for data-center expansion. But the overwhelming majority of AI capex is being funded by customers and by the cash flow of the Magnificent 7, a group with the financial firepower to sustain multi-year spending without relying heavily on capital markets.
This dynamic alone separates today’s environment from classic bubble conditions.
Do the Magnificent 7 Really Deserve a $22 Trillion Valuation?
The Mag 7 represent only 1% of S&P 500 constituents yet account for a massive 35% of the index’s market value. That concentration understandably raises eyebrows, evoking historical parallels to the “Nifty Fifty” of the 1970s or the “Four Horsemen” of the 1990s.
But headline concentration can be misleading—because the fundamentals tell a very different story. Here are some of the major disparities:
1.) Mag 7 Share of Profits Matches Their Share of Market Value: The Mag 7 collectively contribute $22 trillion of the S&P 500’s $58 trillion total value (below). Said differently, the market values and weightings of the Mag 7 equate to about $22 trillion and 37% of the S&P 500, respectively:
· Nvidia Corp: $4.3T & 7.0%
· Apple Inc.: $4.1 T & 6.7%
· Alphabet Inc.: $3.9 T & 6.3%
· Microsoft Corp.: $3.7 T & 5.9%
· Amazon.com Inc.: $2.5 T & 4.0%
· Meta Platforms Inc.: $1.6T & 2.6%
· Tesla Inc.: $1.4T & 2.3%
· TOTAL: $22T / 37%
Source: Slickcharts
Conveniently (and importantly), the Mag 7’s roughly $747 billion in annual cash flow (see table below) is a good proxy for their profit contribution to the $2 trillion in S&P profits.
Source: SEC Filings & MarketSurge
The $747 billion in Mag 7 cash flows divided by the $2 trillion in S&P 500 coincidentally also equates to 37% ($747B/$2T).
These calculations of the Mag 7 are not bubble math—these calculation comparisons are rational math. Arguments could be made that Mag 7 market values are actually undervalued (not in bubble territory) and should appreciate to a higher percentage of the S&P 500 weightings because these 7 stocks are growing sales and profits faster than compared to the other “absentee” 493 stocks in the index.
2.) Mag 7 are Swimming in Cash: That $747 billion in annual cash flow is on track to hit a jaw-dropping $1 trillion, giving these firms ample capital to fund AI buildouts without substantially accessing the equity or credit markets. The ability to self-fund a multi-trillion-dollar infrastructure expansion is the opposite of bubble behavior.
3.) Valuations Are Elevated—but Far from Bubble Territory: During the 2000 Tech Bubble, many leading tech names traded at 100x+ earnings (See also: Rational or Irrational Exuberance. Today, the Mag 7 trade at a median forward P/E around 30x. Expensive? Historically, yes, versus long-term averages, but nowhere near historical extremes. Relative to growth, profitability, and cash flow, valuations are far more grounded today than during prior manias.
The bottom line is there is plenty to be thankful for and bubble fears are overstated. Despite pockets of AI froth, the underlying economic engine powering AI adoption is real, profitable, and well-capitalized. When investors follow the money, they discover:
· The Mag 7 generate over one-third of S&P 500 profits
· They generate and hold hundreds of billions in cash
· They largely fund their own AI capital expenditures
· Valuations remain far below bubble-era extremes
Investors have a lot to be thankful for. And while volatility will likely continue, the ingredients for a classic, catastrophic AI bubble are noticeably absent. For disciplined, long-term investing strategies like those employed at Sidoxia Capital Management, this environment still offers abundant opportunity—without the need to fear a pricked AI balloon anytime soon.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Dec. 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in NVDA, AAPL, MSFT, GOOGL, AMZN, META, TSLA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in ORCL or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Rational or Irrational Exuberance?
The government may be shut down, but the stock market hasn’t noticed. In fact, stocks just capped another record-breaking month. The S&P 500 gained +2.3%, the NASDAQ climbed +4.7%, and the Dow rose +2.5%.
Millions of Americans are feeling the downside of the shutdown—from disrupted travel to stalled services and furloughed workers. Historically, such uncertainty rattles Wall Street. This time? Investors seem more captivated by the transformative promise of artificial intelligence (AI).
So, the key question today: Is this AI-driven exuberance rational—or irrational?
Exuberance Then vs. Exuberance Now
Having invested for more than 35 years, I’ve seen periods of euphoria and fear. I vividly remember December 1996 when Fed Chair Alan Greenspan famously questioned whether markets were becoming “irrationally exuberant.” Back then, the NASDAQ sat near 1,300. Over the next three years it soared past 5,100 (almost quadrupling), only to crash nearly 80% by 2002.
But here’s the twist: it’s true, we did experience a “tech bubble burst”, but where is the NASDAQ index value today? Amazingly, the index stands at 23,000 (see chart below) – an 18x increase above the 1996 level when Greenspan gave his irrational exuberance speech! So, in hindsight, the sound we heard during 2000 was not the tech bubble bursting but rather an internet Big Bang! The internet wasn’t a speculative fad—it was the foundation of a global transformation.
So, what about AI?
Source: Macrotrends LLC
Internet Cycle vs. AI Supercycle
The internet era lifted the number of online users from zero to five billion—over 60% of the planet (see chart below). The AI wave kicked off publicly in November 2022 with ChatGPT’s release. In under three years, the NASDAQ has more than doubled. That pace isn’t sustainable forever, of course. Bubbles form, emotions swing, and markets correct. But dismissing AI as a fad ignores its unmistakable—and accelerating—impact.
Source: BOND – Mary Meeker
With the rapid appreciation in the stock market, it’s important for investors to identify and understand the warning signs of potential bubble bursting or market crash. In fact, I continue to do my part by studying past crashes. My shipment of Andrew Ross Sorkin’s book, 1929: Inside the Greatest Crash in Wall Street History just arrived and all these lessons remind us that not all booms are bubbles, and not all crashes end innovation.
Not All Bubbles are Created Equal
Major market drawdowns are part of a long-term investor’s journey:
- 1929: Great Crash
- 1973-74: Nifty-Fifty
- 1987: Black Monday
- 2000: Dot-com bust
- 2008: Financial crisis
- 2020: COVID crash
Many pundits today are now asking is this AI surge the next bubble? Valuations, as measured by P/E ratios (Price/Earnings), suggest a very different setup than in 2000.
Back then, many tech leaders traded at 100x+ earnings. Today’s Magnificent Seven tech leaders are elevated, but nowhere near dot-com extremes:
- NVIDIA Corporation (NVDA): 57x
- Apple Inc. (AAPL): 36x
- Microsoft Corp. (MSFT): 36x
- Alphabet Inc. (GOOG): 32x
- Amazon.com, Inc. (AMZN): 31x
- Meta Platforms, Inc. (META): 23x
*Source: MarketSurge – only Tesla, Inc. (TSLA) has a P/E higher than 100x.
For the S&P 500 overall, the index has a forward P/E of 22.8x (Yardeni Research), significantly lower than 2000 levels and nowhere near bubble territory.
Source: Wall Street Journal – March 14, 2000
Life After the Internet and Life After AI Introduction
Think back 25 years:
- Renting movies at Blockbuster before Netflix went digital
- Driving to the bank for deposits
- Buying stamps to mail checks before Venmo or Zelle
Today, those activities feel prehistoric. AI is set to reshape daily life on an even faster timeline — from medicine and logistics to entertainment and marketing.
I’m discovering “AI epiphanies” weekly.
- With a few prompts, I created a beautiful Mother’s Day poem and became a poet hero despite never writing poetry before.
- When I recently needed to write an obituary for my mother, AI helped structure and refine it in minutes instead of taking me hours.
- Just last month I needed to hunt down lobster bisque for a shrimp pasta recipe I wanted to make. It turned into a time-wasting scavenger hunt. Thankfully, AI found it in stock, even when multiple apps insisted it wasn’t available. Needless to say, the recipe was incredibly delicious, and my stomach thanked ChatGPT.
And when it comes to investing? Evaluating biotech companies used to take weeks. Now, detailed research can be synthesized in days without sacrificing rigor. AI isn’t replacing insight — it’s amplifying output.
Not All AI Stories Are “Unicorns and Rainbows”
AI boosts productivity. Higher productivity means some companies need fewer people. Amazon recently announced 14,000 layoffs despite reporting amazing financial results. Microsoft and Meta have also announced thousands of employee layoffs even as profits rise.
This isn’t doom and gloom — it’s innovation cycles in action. Technology displaces tasks before ultimately creating new industries and roles.
So… Rational or Irrational?
Although there has been much debate regarding whether we are in an AI bubble, from my perspective, we are in the very early innings of a long AI revolutionary game. There are definitely pockets of frothiness that expose investors to undue risk, but if you can follow a disciplined, diversified, valuation-sensitive investment strategy, like we implement at Sidoxia Capital Management, I feel that the current exuberance is more rational than irrational.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Nov. 3, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in NVDA, AAPL, MSFT, GOOGL, AMZN, META, TSLA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Markets Surge Higher Despite Shutdown Anxiety Fire
Wars rage on in Ukraine and Gaza, political violence is on the rise at home, tariff-driven inflation remains debated, and anxiety over a looming government shutdown is intensifying. On the surface, this might sound like the perfect recipe for a market meltdown. But Wall Street seems unfazed. In fact, U.S. equities pushed to new record highs again this month, continuing the bull market’s relentless advance in the face of these concerns.
Here is a market performance snapshot for the month:
- S&P 500: +3.5% (+13.7% year-to-date)
- Dow Jones Industrial Average: +1.9% (+9.1% year-to-date)
- NASDAQ Composite: +5.6% (+17.3% year-to-date)
What’s fueling the optimism?
• A Strong Economy: The economy just produced a final +3.8% GDP growth for the 2nd quarter, and the Atlanta Federal Reserve is forecasting an even stronger economy for the 3rd quarter of +3.9% (see below).
• Robust Corporate Earnings: S&P 500 corporate profits surged by +11.8% in the 2nd quarter and consensus estimates call for 3rd quarter growth of +7.9%. Historically, CEOs tend to set conservative forecasts, therefore actual results often exceed low-bar expectations. Therefore, it’s very possible that Q3 earnings growth could achieve double-digit growth levels once again.
• A.I. Drive Still Alive: With trillions of dollars in A.I. spending plans already announced, hungry investors once again gobbled up A.I. tech stocks last month. For instance, Oracle Corp’s (ORCL) stock jumped +24% for the month in large part driven by a $317 billion increase in backlog orders during the company’s first fiscal quarter. Reportedly, the majority of the massive increase in orders came from one customer, OpenAI – the brains behind the A.I. juggernaut, ChatGPT. The rise in Oracle’s share price temporarily propelled CEO Larry Ellison past Tesla’s (TSLA) CEO Elon Musk as the world’s richest person, before markets began critically questioning whether OpenAI’s CEO (Sam Altman) can ultimately fund the hundreds of billions of dollars in Oracle commitments.
Source: Atlanta Federal Reserve
Shutdown Jitter History
Market anxiety has shifted from a hypothetical government shutdown nightmare to a scary reality, given the funding deadlines have already lapsed. Many investors are asking what this means for stocks. Fortunately, government shutdowns are nothing new. Our country has flourished over the last 50 years despite experiencing around two dozen shutdowns, many of which only lasted a few hours, a few days, or a few weeks. According to Kiplinger, since the 1970s, the stock market has averaged a +0.3% return during shutdown periods (see chart below).
Source: Kiplinger
In fact, the longest shutdown on record occurred most recently from December 2018 to January 2019 (35 days during President Trump’s first term) and resulted in a sharp +10% gain (see chart below).
Source: Kiplinger / YCharts
The partisan finger-pointing will continue, but history suggests that shutdowns are short-term noise with little bearing on long-term market direction. Long-term investors understand there is never a shortage of concerns during bad times (e.g., potential recessions, job losses, credit defaults, bankruptcies, etc.), or good times as well (e.g. fear of inflation, restrictive monetary policy, politics, etc.). Turning off the TV is often the best course of action (see also – Turn Off the TV).
What’s Next? Looking Ahead After more than 30 years of investing—including weathering the dot-com tech sense of purpose collapse in 2000—I’ve learned that markets always have a tendency of climbing a wall of worry, so it’s better to not react emotionally to daily news headlines. Rather, it’s better for investors to stay focused on those market leading, innovative companies and concentrate on those sectors experiencing long-term secular trends.
As we enter Q4 and head toward 2026, A.I. remains the defining theme. Since the launch of ChatGPT in November 2022, the S&P 500 has surged +24% in 2023, +23% in 2024, and +14% so far in 2025. Unfortunately, trees do not grow to the sky forever.
At Sidoxia Capital Management, we understand that valuations currently are stretched on a historic basis and that markets never move in a straight line. As a result, a correction at some point in stock prices should not come as a surprise to anyone. Nevertheless, whether you’re bullish on the productivity gains from large language models (LLMs) or skeptical of over-investment and hype, one thing is clear: A.I. is here to stay, and it doesn’t matter if you believe the government shutdown flames will grow into an inferno or fizzle out in smoke, which is usually the case.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (October 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in ORCL, TSLA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
A.I. Field of Dreams
In the 1989 Academy Award–nominated film Field of Dreams, the lead character Ray Kinsella (played by Kevin Costner) hears a mysterious voice whisper, “If you build it, he will come.” Acting on blind faith, Ray builds a baseball diamond in the middle of his Iowa cornfield, risking financial ruin. Against all logic, the field draws a flood of visitors.
Today, a similar “field of dreams” is being built—not with corn, but with data centers. Instead of baseball players, it is artificial intelligence (AI) models, applications, and users who are coming.
The Market’s AI Momentum
The AI boom has already reshaped markets with all three benchmarks hitting record highs. Last month, the S&P 500 climbed +1.9%, while the NASDAQ rose +1.6% and Dow Jones Industrial Average surged +3.2%. Year to date, the indexes are up +10%, +11%, and +7%, respectively.
Behind this surge lies an unprecedented wave of AI infrastructure investment. Hyperscalers—Amazon.com (AMZN), Microsoft Corp. (MSFT), Google-Alphabet (GOOGL), Meta Platforms (META), and others—are pouring hundreds of billions into AI, much of it flowing directly to NVIDIA Corp. (NVDA), the undisputed leader in GPUs (Graphic Processing Units) powering the world’s AI engines. How large is the spending? NVIDIA CEO Jensen Huang estimates $3 trillion to $4 trillion will be spent this decade to fuel the AI revolution.
Source: Visual Capitalist
The Scale of AI’s Buildout
To put this into perspective:
- Amazon is projected to spend over $100 billion in 2025 alone, more than its cumulative capital expenditures from 2000–2020 combined.
Meta is constructing its $10 billion+ Hyperion data center in Louisiana—a sprawling 4 million sq. ft. complex across 2,250 acres, powered by a $4 billion natural gas plant. The footprint is so gargantuan it could cover much of Manhattan (see graphic below).
- xAI’s Colossus, a 750,000 sq. ft. data center in Memphis, Tennessee was completed in just 122 days—equivalent to building 418 homes in half the time it normally takes to construct one house (see slide below).
Source: BOND (Global Technology Investment Firm)
This breakneck pace of spending underscores the urgency and competitive pressure driving the global AI arms race.
The Origin of the AI Floodgates Opening
The spark was lit on November 30, 2022, when OpenAI released its LLM (large language model) called ChatGPT. Within two months, it amassed 100 million users.
Today, ChatGPT’s metrics have blasted much higher (see slide below):
- 800 million weekly active users
- 20 million paid subscribers
- $3.7 billion in revenue (as of April 2025)
Source: BOND (Global Technology Investment Firm)
But OpenAI is far from alone. Google (Gemini), xAI (Grok), Anthropic (Claude), Meta (LLaMA), Amazon (Titan), Perplexity, and DeepSeek are all competing with their own LLMs. In total, over 1 million machine learning models now exist (see slide below) — each requiring costly compute power and pricey data centers.
Source: BOND (Global Technology Investment Firm)
Bubble or Productivity Breakthrough?
With trillions flowing into AI, a natural question arises: Is this a bubble?
Even OpenAI CEO Sam Altman admits we’re in an AI bubble :
“When bubbles happen, smart people get overexcited about a kernel of truth…Someone is going to lose a phenomenal amount of money… and a lot of people are going to make a phenomenal amount of money.”
Both realities can be true:
- Yes, hyperscalers are spending like “drunken sailors.”
- Yes, AI demand and productivity benefits are real and growing exponentially.
Consider the trajectory of global cloud revenues: from nearly $0 a decade ago to $300 billion today—a +37% CAGR (see chart below).
Source: BOND (Global Technology Investment Firm)
And the primary reason for cloud growth can be attributed to AI productivity benefits. A recent SAP survey found that workers using AI save nearly one hour per day on average. That’s transformative for companies: higher productivity without needing proportional hiring.
AI Use Cases Expanding Aggressively
AI’s applications now span nearly every sector (see slide below):
- Technology – software engineering, code generation
- Customer Service & Marketing – customer support and call centers
- Transportation – autonomous vehicles and logistics
- Healthcare – drug discovery and development
- Supply Chains – precision manufacturing and optimization
- Automation – multi-purpose robotics
- Cybersecurity – threat detection and prevention
- Education – personalized lessons and curriculums
- Energy – grid optimization and demand forecasting
Source: BOND (Global Technology Investment Firm)
The New Field of Dreams
Throughout history, every great leap—printing press, steam engine, electricity, internet—has required massive upfront investment before the payoff arrived. AI is following the same path. Today, we are in the midst of building a new AI Field of Dreams. However, now, the data centers are the new baseball fields. And as with Ray Kinsella’s diamond, the masses are indeed coming.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (August 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in GOOGL, META, AMZN, MSFT, NVDA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in SAP or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Trade & OBBB Deals Sealed, Fed Dread, and AI/Meme Dreams
As the stock market reached new all-time highs, investors had plenty to juggle—both in Washington, D.C., and on Wall Street. The S&P 500 climbed +2.2%, the NASDAQ surged +3.7%, and the Dow Jones Industrial Average edged higher by +0.1% for the month.
The One Big Beautiful Bill
What has fueled the rally? A major catalyst was President Trump’s signing of the One Big Beautiful Bill Act (OBBB) on July 4th. The nearly 900-page legislation spans a broad range of economic issues including tax reform, healthcare, energy policy, and national security.
According to the Congressional Budget Office (CBO), the combined impact of tax cuts, new spending, and spending reductions will result in a net cost of $3.4 trillion over 10 years (see chart above). Supporters of the bill argue that this projection underestimates the long-term stimulative effects of tax relief and strategic investments. Whether the deficit widens as the CBO projects, or narrows thanks to a stronger, growing economy, remains to be seen.
Trade Deals Sealed
Since Liberation Day on April 2nd, trade negotiations have progressed unevenly. The administration’s reciprocal tariff hikes were paused through August 1st to allow final agreements to be reached. Following months of tough rhetoric, multiple major trading partners ultimately signed deals before the deadline—including the European Union, Japan, the United Kingdom, Vietnam, and South Korea—thereby avoiding punitive tariffs.
Talks with our two key trading partners, Mexico and Canada, remain ongoing. While Mexico was granted a 90-day extension amid constructive dialogue, Trump slapped a 35% tariff on Canada (from 25%) due to what the White house said was “continued inaction and retaliation.” The tariff pause with China stops on August 12th.
Here’s a list of the new country tariffs released by the president late yesterday: CLICK HERE
Regardless of all the tariff uncertainty, investor sentiment improved last month as the terms of the signed deals were significantly milder than originally feared.
Adding to the optimism:
- Core inflation in June remained modest at 2.8% (Reuters), and
- Tariff revenues collected through July reached $126 billion, beating initial estimates (Politico) – see chart below. Strategist Ed Yardeni forecasts that 2025 tariff revenues could surge to between $400 billion and $500 billion (Barron’s).
Source: Politico
Fed Dread
Of course, when it comes to financial markets, everything can’t just be rainbows and unicorns without something for investors to worry about—and this month, a key concern remains Federal Reserve policy. Critics, including the president, argue that interest rates are too high, with the Federal Funds Rate currently set at 4.25%–4.50% (Yardeni Research) – see chart below.
By comparison:
- The European Central Bank’s Deposit Facility Rate stands at 2.00%, and
- The Bank of Japan’s overnight rate is only 0.50%.
Source: Yardeni Research
Fed Chair Jerome Powell has held off on further cuts, citing the need for more clarity on inflation and labor market data, especially in light of recent tariffs. Ironically, when the Fed last cut rates by -1.00% late last year, the 10-year Treasury yield rose by roughly +1% (see chart above), reflecting fears of rising inflation.
This week, the Fed held rates steady for the fifth consecutive meeting (YouTube). Notably, two FOMC members—Christopher Waller and Michelle Bowman—dissented, voting in favor of a rate cut. It was the first dual dissent by Fed governors in over 30 years—a clear signal of division inside the central bank.
Meme Dreams
With the major indexes at new highs, speculation has returned in full force. Money-losing, struggling companies like Opendoor Technologies, GoPro Inc., and Kohl’s Corp. saw their shares double, triple, or even quadruple over a short span (WSJ) – see chart below. We saw similar trends occur during the GameStop and AMC meme craze in 2021.
Source: The Wall Street Journal
Adding fuel to the fire:
- Cryptocurrency prices are on the rise again.
- Euphorically priced IPOs (Initial Public Offerings) like Figma, Inc. (FIG), which more than tripled in value ($115 per share) on its first trading day above its offering price ($33 per share) valuing the company above $50 billion – more than 30 times next year’s forecasted revenues.
- SPACs (Special Purpose Acquisition Companies)—often criticized for poor governance—are staging a comeback.
Combined, all these trends raise concerns about froth, which investors have experienced at previous peaks.
Climb in AI Stocks Persists
No discussion of this rally would be complete without highlighting the AI mega-cap giants. Companies like Alphabet (Google), Meta (Facebook), Microsoft, and Amazon all recently announced capital expenditures for 2025 that will likely exceed an astounding $350 billion —most of it allocated to AI infrastructure.
Meanwhile, NVIDIA Corp., the AI-chip juggernaut and major beneficiary of all the AI capex, has seen its share price soar +63% in just three months, reaching a staggering $4.4 trillion market value.
Source: Yardeni Research
Valuations High but Fundamentals Remain Strong
While stock valuations remain elevated above historical averages (the S&P 500 red line trades at 22x forward earnings, according to Yardeni) – see chart above, the macro backdrop remains supportive:
- The economy is strong,
- Unemployment is low,
- Corporate profits are growing, and
- Monetary policy may turn more accommodative in coming months.
In this momentum environment, the market should continue its productive juggling, but if the frothy or economic winds worsen, investors should be prepared for a dropped ball.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (August 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in GOOGL, META, AMZN, MSFT, NVDA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in OPEN, GPRO, KSS, GME, AMC, FIG or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
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