Posts tagged ‘open ai’
Stocks Soar as Profits Roar
The Geopolitical Dilemma: Iran Gone Wrong
It has been a volatile and unsettling period in the Middle East. Following more than a month of continuous bombing in Iran, the United States reached a tenuous ceasefire. While the active conflict has paused, the U.S. continues to maintain a financially crippling blockade against the Iranian regime.
If that geopolitical stress isn’t enough, oil prices remain elevated at $105 per barrel (WTI), roughly 57% above levels seen before the bombings began. Furthermore, gasoline prices hovering around the $4.40 per gallon threshold are acting like a brake that is slowing down global economic activity.
On the surface, this negative narrative sounds like a disastrous backdrop for financial markets. Yet, last month’s stock market performance tells a completely different story:
· S&P 500: +10.4%
· NASDAQ: +15.3%
· Dow Jones Industrial Average: +7.1%
Why the Disconnect?
Followers of my firm, Sidoxia Capital Management, and my blog, Investing Caffeine, know that geopolitics are rarely the primary drivers of long-term stock performance. Instead, we look to the “four legs of the Sidoxia stool”: profits, interest rates, valuations, and sentiments. For a deeper dive, check out my article: Don’t Be a Fool, Follow the Stool. The vital leg supporting the recent move in stocks has been soaring profits. As illustrated by data from Yardeni.com, S&P 500 profits (red line) are accelerating at a much steeper pace than those of the S&P 400 MidCap (blue line) and S&P 600 SmallCap (green line).
Source: Yardeni.com
A major contributor to this profit expansion is rising profit margins. Today, companies are earning a profit of approximately11 cents per dollar of sales, compared to just 5.5 cents during the 1970s and 1980s. The chart below highlights this phenomenon.
Source: Calafia Beach Pundit
The AI Productivity Revolution
What is driving much of this margin expansion? You guessed it: Artificial Intelligence.
We need to look no further than the mega-cap tech companies that reported Q1 financial results this week (Alphabet, Amazon, Microsoft, and Meta Platforms) to see how AI is helping companies cut costs and grow revenues:
- Combined, these four companies boast a revenue run-rate exceeding $1.7 trillion, with an accelerating growth rate above +22%.
- Meanwhile, headcount growth at these firms has remained virtually flat at < 2%. In fact, Meta and Microsoft recently announced a combined 20,000 in job cuts, raising concerns over an AI labor crisis.
These sales increases and expense reductions help explain last month’s surge in the performance of these stocks:
- Alphabet-Google (GOOGL): +33.9%
- Amazon.com Inc. (AMZN): +27.3%
- Microsoft Corp. (MSFT): +10.2%
- Meta Platforms Inc. (META): +6.8%
AI Driving the IPO Pipeline The AI boom is also creating massive value in the private markets. High-profile expected IPOs – including Elon Musk’s xAI, OpenAI (makers of ChatGPT), and Anthropic – are expected to exceed a combined $2 trillion in valuation. The graphic below shows the gargantuan size of these expected IPOs.
Source: Financial Times
The AI Train is Leaving the Station
AI is impacting every industry and every worker in some way, and this disruptive wave will undoubtedly displace some jobs. However, investors have the opportunity to jump on the train rather than be left behind.
As I noted in my recent article, The Saaspocalypse Has Arrived—or Has It?, if history repeats itself, the rollout of new technologies creates an influx of new industries and jobs that offset initial disruptions. If you work in an industry vulnerable to AI proliferation, taking advantage of the AI profit revolution can help offset potential financial disruption.
Of course, not everything is rainbows and unicorns. The Iranian conflict could still spiral out of control, which could quickly reverse recent stock market gains.
As I recapped for investors last month:
“History reminds us that while geopolitical shocks are terrifying in the moment, their impact on diversified portfolios is almost always temporary… In the world of investing, the best time to stay disciplined is exactly when everyone else is looking for the exit.”
Suffice it to say, geopolitics can and will impact short-term performance, but they rarely dictate long-term trends. When analyzing the market, it is crucial to remember a fundamental truth: When profits roar, stock prices often soar.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (May 1, 2026). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in GOOGL, META, AMZN, MSFT, 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.
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