Posts tagged ‘A.I.’
AI Genie Out of the Bottle – Despite Attempts to Throttle
While geopolitics, interest rates, inflation, and economic growth constantly influence financial markets, the primary driver of stock prices over recent years remains the rapid global adoption of artificial intelligence. Ever since OpenAI’s ChatGPT sparked the AI revolution in November 2022, the technology landscape has been permanently altered. Although local pushback against the massive AI infrastructure rollout is intensifying, the AI genie is out of the bottle – and it cannot be put back in.
Data Center Angst, Chinese Competition, and Bubble Spending Concerns
Last month proved to be a choppy period for equity investors. In addition to escalating geopolitical tensions in the Middle East, markets were rattled by surging Chinese AI capabilities and semiconductor competition. The China tech rivalry is highlighted by the release of Moonshot’s Kimi K3 model and the IPO (Initial Public Offering) of chipmaker CXMT, the largest company trading on mainland China, valued near $500 billion.
The technology sector took the largest brunt of the selling pressure. The NASDAQ index fell -3.2% and the Magnificent 7-heavy QQQ index tumbled -6.6%. The S&P 500 index and Dow Jones Industrial Average had more modest moves, down -0.1% and up +0.3%, respectively for the month.
The AI Data Center Backlash
While consumers and businesses enjoy the instant productivity gains of AI software, a groundswell of community opposition is rising against the physical footprint required to power these tools. Critics frequently cite concerns over potential job losses, rising electricity bills, regional water consumption, rogue agent cyber-attacks, negative effects on residential property values, and other environmental damages.
A recent Gallup survey revealed that 71% of Americans oppose data center construction in their local communities. Currently, 15 states have enacted or proposed moratoriums/bans on new data center construction (see States Banning Data Centers).
While “NIMBY” (Not In My Back Yard) opposition may delay or defer localized builds, the overarching economic and strategic advantages of AI mean development will press forward. To win over reluctant municipalities, hyperscalers (including, Amazon, Google, Microsoft, and Meta) are offering tailored community benefit agreements, local grid investments, and environmental commitments (see Hyperscalers Put Community Investment First).
As Doug Sims, Managing Director at Green Finance & Economic Development, notes, hyperscalers are funding “investments in weatherization, home repairs, heat pumps, distributed solar and storage, and demand-management technologies.” These initiatives lower peak energy demand and reduce household costs while helping secure local permits. Communities that embrace this infrastructure stand to reap substantial long-term rewards in high-paying jobs and expand their local tax base.
Does AI Work? Is it Worth Trillions in Investment?
A central debate across Wall Street is whether the estimated $6 trillion in projected spending on AI chips, data centers, and power grid upgrades over the next five years will generate sufficient economic returns (see my previous article, The Multi-Trillion AI Tsunami).
From my vantage point, the answer is a resounding yes. One need look no further than the massive $760 billion in combined capital expenditure projected for 2026 alone across Meta, Microsoft, Amazon, and Alphabet – an 84% increase over the $413 billion spent in 2025 (see chart below).
Source: Statista
Where’s the Beef?
Given these staggering capital outlays, investors are understandably asking when and where the payoff will materialize.
I may be dating myself but an iconic commercial introduced when I was a kid captures this sentiment. For any hamburger enthusiasts, you may remember the 1984 Wendy’s “Where’s the Beef?” commercial, in which three elderly customers examine a massive, fluffy bun only to find a tiny patty buried inside. Wall Street is currently looking at hyperscaler capital expenditures and asking the same question: “Where is the meat on this multi-billion-dollar AI burger?”
While free cash flow profiles are temporarily compressed by infrastructure buildouts, there is already plenty of high-protein evidence demonstrating that these investments are paying off:
· Accelerating Top-Line Cloud Revenues
· Record Commercial Backlogs/Remaining Performance Obligations (RPO)
· Substantial Productivity Gains
Let’s review the latest growth figures from the four major hyperscalers:
The $760 billion in spending by the “Big 4” hyperscalers is astounding but the backlogs (orders received but not fulfilled) for just the top three (Microsoft, Google, and Amazon) are even more gigantic at approximately $1.4 trillion (see Backlog/RPO column total in table above). If AI technology lacked real-world utility or failed to generate economic returns, enterprise customers would not be locking in massive orders in multi-year forward commitments. Despite achieving surging revenue growth, hyperscaler headcount growth remains remarkably subdued (see far-right column in table above). This is proof positive that internal AI deployment is unlocking operating leverage and efficiency.
Looking Ahead
We remain in the early innings of the enterprise AI adoption curve. Even if political maneuvering or regulatory friction slows the pace of data center construction in certain jurisdictions, it will simply extend the runway of this infrastructure super-cycle rather than trigger a boom-and-bust collapse. The AI genie has granted far more wishes than it has denied – and despite attempts to throttle its momentum, the AI transformation continues to march forward.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (August 3, 2026). Subscribe Here to view all monthly articles.
Sidoxia Capital Management (SCM) and some of its clients hold positions in AMZN, GOOGL, META, MSFT, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in 688825.SS (CXMT), WEN, or any other security referenced in this article.
DISCLOSURE: 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. Each investor’s situation is unique so please work with a professional financial adviser, tax accountant or legal representative, as applicable, to develop an individualized plan or address any questions you may have. Investing involves risk including the possibility of loss of one’s investment.
A Tale of Two Cities
In 1859, Charles Dickens published his timeless historical novel, A Tale of Two Cities, set in London and Paris before and during the French Revolution (1775 – 1789). He opens the book with one of the most famous passages in literary history:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.”
Nearly 170 years later, Dickens’ words could easily describe today’s stock market.
On one hand, the S&P 500 has climbed +9.6% this year and recently reached another all-time high – the “best of times.” On the other hand, many investors believe the artificial intelligence boom has become dangerously speculative and bears an uncomfortable resemblance to the technology bubble that burst in 2000 – the “worst of times.”
That divergence in sentiment was reflected in last month’s market performance:
- Dow Jones Industrial Average: +2.5%
- S&P 500: -1.1%
- NASDAQ: -2.8%
THE BEST OF TIMES
There are plenty of reasons why this multi-year bull market continues to march higher. Here are three of the most compelling.
AI Boom – Micron
As I discussed in last month’s article, The Multi-Trillion AI Tsunami, trillions of dollars are being invested across the artificial intelligence ecosystem.
Among the biggest beneficiaries are semiconductor memory companies such as Micron Technology, Inc. (MU), whose High-Bandwidth Memory (HBM) chips have become critical components powering next-generation AI data centers.
Micron recently reported extraordinary financial results as demand continues to outstrip supply. In its most recent quarterly report, Micron’s revenues more than quadrupled to $41.5 billion from $9.3 billion (+346%), a year ago. Profits for the three-month period skyrocketed even more by 15-fold to $28.2 billion from $1.9 billion (+1,398%).
Behind this remarkable growth is a structural supply shortage. Unlike software, semiconductor manufacturing capacity cannot be expanded overnight. Building a state-of-the-art memory fabrication facility requires billions of dollars of investment and typically takes three to four years to complete.
That lengthy construction timeline suggests favorable pricing and elevated profitability may persist well beyond the current earnings cycle, which explains Micron’s +837% spike in its stock price over the last year.
Earnings Are Rising Faster Than Stock Prices
Many investors assume record highs automatically mean expensive valuations. Not necessarily. Valuation depends on both price and earnings. When corporate earnings grow faster than stock prices, the market actually becomes less expensive despite reaching new highs.
Think back to elementary school fractions. If the denominator (earnings) grows faster than the numerator (price), the overall ratio becomes smaller. The same principle applies to the market’s Price-to-Earnings (P/E) ratio.
That is exactly what has occurred this year. Projected corporate profits are expected to surge +31%, causing the S&P 500’s valuation multiple to decline even as the index has reached record levels. One of my favorite long-term charts (below) illustrates this relationship perfectly. While stock prices can deviate from fundamentals over shorter periods, they ultimately follow the direction of corporate earnings.
Source: Yardeni Research
Economic Momentum Is Improving
Another encouraging development is the improving economic backdrop. The ISM Manufacturing Index remains one of the most reliable gauges of economic activity. Readings above 50 signal expansion, while readings below 50 indicate contraction. Recent data show both the United States and the Eurozone moving back into expansionary territory, suggesting manufacturing activity and economic momentum are strengthening after an extended slowdown.
Source: Calafia Beach Pundit
THE WORST OF TIMES
As I discussed in my earlier article, The SaaSpocalypse Has Arrived?, the AI revolution is creating a palpable anxiety attack as broad swaths of Americans worry about AI agents stealing their $180,000 managerial positions for a $200/month subscription fee.
There are many reasons to remain optimistic about AI’s long-term benefits, but investors should also recognize several risks that could quickly shift today’s “best of times” into the “worst of times.”
Speculative Valuations
Although the overall market appears far more reasonably valued than during the peak of the Dot-Com Bubble, speculation has clearly returned to select areas of the market.
The recent public debut of Elon Musk’s SpaceX serves as a prime example. Despite generating billions in operating losses and burning -$9 billion in cash in its recent quarter, investors have assigned the company a valuation exceeding $2 trillion. Based on trailing revenues of approximately $19 billion, investors are effectively paying more than 100 times annual sales. Such valuations require extraordinary execution over many years to ultimately justify today’s prices.
Nor is the enthusiasm limited to SpaceX. Reports indicate AI leaders Anthropic and OpenAI are preparing their own public offerings, with expected valuations approaching $1 trillion despite annual revenues that remain a fraction of those levels. History teaches us that transformative technologies often create enormous long-term winners — but periods of genuine innovation can also produce speculative excess.
Geopolitical Risks
Although a tentative ceasefire currently exists between the United States and Iran, geopolitical conditions remain fluid. Markets have largely looked through the recent conflict, but history reminds us that geopolitical events can change quickly and unexpectedly. A deterioration in the Middle East could rapidly reverse investor sentiment.
AI-Driven Layoffs
The labor market remains relatively healthy, with unemployment near 4.3%. However, beneath the surface, signs of workforce restructuring continue to emerge as companies invest aggressively in automation and artificial intelligence.
Technology companies have announced approximately 125,000 layoffs this year—roughly 66% more than during the same period last year. Oracle recently announced plans to eliminate an estimated 21,000 positions. Robinhood is reducing its workforce by approximately 10%, while Cisco revealed it is slashing its workforce by 5% (4,000 jobs). Although today’s labor market remains resilient, investors should monitor whether AI-driven productivity gains ultimately translate into broader employment weakness.
Source: Wall Street Journal
Final Thoughts
Last month’s mixed market performance reflects an investment landscape filled with both optimism and uncertainty.
If Charles Dickens were writing today, his Tale of Two Cities might instead be titled A Tale of Two Markets. The speculative excesses we experience in every technological revolution could lead to the “worst of times” but for now, the “best of times” is currently prevailing as investor optimism over AI’s productivity benefits remains front and center.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
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 MU 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. Each investor’s situation is unique so please work with a professional financial adviser, tax accountant or legal representative, as applicable, to develop an individualized plan or address any questions you may have. Investing involves risk including the possibility of loss of one’s investment.
The Multi-Trillion AI Tsunami Sweeping the Market
Not only has Artificial Intelligence (AI) dominated headlines, but a multi-trillion-dollar investment tsunami is creating a rising tide that has lifted many AI-related stocks to market leadership. Since the seismic launch of OpenAI’s ChatGPT in November 2022, investors have rushed to participate in what may be one of the largest technology investment cycles in history.
At my firm, Sidoxia Capital Management, we have been positioned in the AI rush for several years—well before ChatGPT became a household name. Close followers of my work know I have been tracking the AI revolution for years (see my previous analysis on my Investing Caffeine blog.
Goldman Sachs recently published an in-depth report highlighting the various AI scenarios and assumptions underlying an estimated $4 trillion to $8 trillion spending boom on compute (AI chips), data center infrastructure, and power investments over the next five years. As shown in the chart below, Goldman’s baseline capital expenditures scenario models a staggering $7.6 trillion in spending from 2026 to 2031. While variables like the lifespan of NVIDIA GPUs can shift annual AI spending estimates by hundreds of billions of dollars, the numbers remain enormous under virtually any scenario.
Source: Goldman Sachs
Market Momentum: Another Record-Breaking Month
For the month, the major indexes once-again vaulted to new record highs, driven by the AI capital expenditure cycle and a record level of profits:
· S&P 500: +5.2% (+10.7% year-to-date)
· NASDAQ: +8.4% (+16.1% year-to-date)
· Dow Jones Industrial Average: +2.8% (+6.2% year-to-date)
As I highlighted in last month’s post, it isn’t just speculative spending driving stock prices higher; it is an active AI productivity revolution that is causing corporate earnings to roar. This is especially true within the large-cap technology sector, which serves as the primary engine behind the S&P 500’s record-breaking performance.
It may seem counter-intuitive, but even as stock prices have reached record heights, valuations have actually become cheaper (sitting at a 20.9 forward P/E) compared to the peak price-to-earnings ratios seen in 2025. How is this possible? Quite simply, the denominator of the P/E ratio (earnings) has been growing at a faster clip than the numerator (stock prices), compressing the overall valuation multiple – see chart below.
Source: Yardeni.com
The Quest for Efficiency
Ultimately, the objective of every publicly traded company is straightforward: increase profits and cash flow. For most businesses, labor remains the largest operating expense. One of the most effective ways to reduce labor costs and improve efficiency is through technology investment. The chart below highlights the growing role technology plays within the economy as companies increasingly invest in automation, software, cloud computing, and AI. These investments often improve productivity, expand margins, and enhance long-term profitability.
Source: Yardeni.com
As this disruptive AI revolution permeates all sectors of the economy, we are witnessing the early stages of a productivity renaissance. Even as unemployment rates slowly creep higher (reaching 4.3% from a 2023 low of 3.4%), corporate profit growth is accelerating while nominal GDP continues to chug along at a steady rate (see chart below).
Source: Yardeni.com
The Infrastructure Winners
Underlying this economic growth are the individual companies building the foundation of the AI boom. Just five months into the year, a select group of infrastructure and semiconductor hardware companies have posted astronomical returns in 2026*:
Underlying the growth in profits and the economy are the individual companies driving the AI infrastructure boom. Even though we are only five months through the year, here is a small list of companies benefiting from and contributing to the rocketing growth in 2026 (YTD % Gains)*:
· Sandisk Corp. (SNDK) +604%
· Micron Technology Inc. (MU) +240%
· Dell Technologies Inc. (DELL) +234%
· Intel Corp. (INTC) +211%
· Western Digital Corp. (WDC) +208%
· Sterling Infrastructure Inc. (STRL) +181%
· Powell Industries Inc. (POWL) +168%
· Comfort Systems USA Inc. (FIX) +96%
· Vertiv Holdings Co. (VRT) +95%
*Sidoxia Capital Management and/or its clients hold positions in some of these companies (see Complete Strategy Performance and Disclosure at the bottom of this article or Click Here).
A major tailwind supporting these companies is the roughly $700 billion of capital expenditures expected in 2026 from hyperscale technology leaders such as Alphabet, Microsoft, Meta Platforms, and Amazon. These firms continue to aggressively invest in AI infrastructure to maintain competitive advantages and satisfy surging demand for AI-powered services – see AI Tech Spending article.
The Importance of Diversification (Even in a Hot Market)
At Sidoxia, our concentrated equity portfolios have significantly outperformed the S&P 500 index in 2026, as well as on a 1-year, 3-year, and 5-year basis. However, our winning exposure in AI infrastructure stocks has been partially offset by underperformance in the cryptocurrency, healthcare, and software/SaaS sectors. This includes drags from holdings like Exzeo Group, Inc. (XZO, -43% YTD), Salesforce Inc. (CRM, -28%), and Roper Technologies Inc. (ROP, -27%).
Ultimately, this underscores the necessity of a balanced portfolio: the positive contributions from our top-performing names heavily outweighed the negative drag from the laggards, allowing our concentrated strategy to come out ahead.
No Signs of Slowing, But Watch the Horizon
Euphoria surrounding the AI spending wave shows no signs of abating in the near term. The highly anticipated upcoming Initial Public Offerings (IPOs) from private giants like SpaceX (SPCX), Anthropic, and OpenAI will likely add fuel to investor excitement. This naturally begs the question: are we inflating another technology bubble?
Trees don’t grow to the sky forever, and the same fundamental law applies to investing—eventually, the parabolic gains will slow or reverse.
The AI tsunami is currently in full force, and while it has created massive wealth today, historical market cycles remind us that unmanaged momentum can eventually cause financial damage to unprepared investors. Right now, there is no shortage of demand for AI services and infrastructure, keeping the market tide exceptionally high. Sidoxia and its clients have benefited tremendously from this secular trend, but we remain highly vigilant and active in managing risk for when the tide inevitably turns.
Stay tuned, and ensure your portfolio is properly structured to navigate the waves ahead.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
Important Performance Disclosure: The specific positions discussed above were extracted based on the top and bottom performers from our overall Concentrated Equity Strategy portfolios. To see how these selections fit into our broader historical track record, please review our
Full Strategy Performance Sheet & Required Legal Disclosures (PDF)
Sidoxia Capital Management (SCM) and some of its clients hold positions in GS, STRL, POWL, FIX, VRT, XZO, CRM, ROP, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. Past performance is no guarantee of future results. Selections referenced in this article represent the top and bottom material contributors and do not reflect all positions bought or sold during this period.
ADDITIONAL DISCLOSURE: 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. Each investor’s situation is unique so please work with a professional financial adviser, tax accountant or legal representative, as applicable, to develop an individualized plan or address any questions you may have. Investing involves risk including the possibility of loss of one’s investment.
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.
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.
Another Hot Month, Another Fresh Record
Summer is coming to a close, but the weather is not the only thing that remains hot. The stock market has been scorching hot as well. Both the S&P 500 and Dow Jones Industrial Average blazed to all-time record highs last month. In fact, both of these indexes have risen seven out of eight months this year, including gains in the last four consecutive months. More specifically, the S&P 500 was up +2.8% last month and +18.4% this year, while the Dow Jones has advanced +1.8% for the month and +10.3% for the year.
How can this surging bull market be in existence while undergoing a war between Russia and Ukraine; military conflict in Gaza; a nasty Japanese Yen Carry Trade unwind; a highly divisive upcoming presidential election; a weakening economy; and rising unemployment (see chart below)?
Source: Calafia Beach Pundit
For all investors and traders, there is never a shortage of issues to worry about, even when times are good. However, despite the long laundry list of concerns, there are plenty of opposing tailwinds supporting the upswell in stock prices, starting with growing record corporate profits with strength forecasted through 2026 (see chart below).
Source: Yardeni.com (Yardeni Research)
Another factor underpinning the strength of stocks has been the decline in the inflation rate. The latest headline inflation rate (CPI – Consumer Price Index) fell to 2.9% in July, and if you exclude shelter costs, inflation has fallen below the Federal Reserve’s 2% target rate.
Source: Calafia Beach Pundit
Conversely, the story was quite different in 2022 when the Federal Reserve began its crusade against out-of-control inflation (see chart below) by starting its first of 11 interest rate hikes that spanned from January 2022 through July of 2023. The net result was a stock market that tanked -19% in 2022. More recently, the Fed has clearly signaled that inflation is more under control with traders predicting a 100% probability of a -0.25% or -0.50% cut in the targeted Federal Funds interest rate on September 18th. The Federal Reserve Chairman Jerome Powell gave a dovish speech at the annual policy meeting in Jackson Hole, Wyoming strongly portending September action – the first cut in four years since the pandemic.
AI Arms Race on Spending
Another dynamic contributing to new stock market record highs is the boom in AI (Artificial Intelligence) spending by the technology behemoths like Amazon.com Inc. (AMZN), Microsoft Corporation (MSFT), Meta Platforms Inc. (META), and Google – Alphabet Inc. (GOOGL). As I have been talking and writing about for some time (see World of AI), there is an arms race in spending to create the next, latest-greatest large language model (LLM) like ChatGPT. The goal is to bring more efficiency and accuracy to businesses and provide consumers more pleasure and time savings at both work and home. As you can see from the chart below, the four colossal technology companies previously mentioned are currently on a run-rate of spending more than a mind-boggling $200 billion annually, much of that going to the king of AI GPU (Graphics Processing Unit) manufacturing, NVIDIA Corporation (NVDA).
Why are companies spending so much on AI? Because they agree with NVIDIA CEO, Jensen Huang, who last week stated, “Generative AI will revolutionize every industry.” Despite all the spoils migrating to NVIDIA, traders were still looking for warts on the AI supermodel when they reported 2nd quarter results last week. Nonetheless, NVIDIA still delivered its 5th consecutive quarter of greater than 100% revenue growth, while generating revenues of almost $100 billion over the last 12 months – not too shabby. Although greedy investors wanted more, the stock was still up +2% for the month and +141% so far this year.
Source: Sherwood News
While economic, political and geopolitical concerns have been boiling over around the world, the stock market continues to sizzle higher. Declining inflation and interest rates, escalating business profits, and spiking artificial intelligence expenditures across corporate America have kept stocks cooking to record highs. It’s been a sweltering summer but not yet too hot for investors to get roasted out of the stock market kitchen.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (September 3, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including AMZN, MSFT, META, GOOGL, NVDA, 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.
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