Posts tagged ‘stock bubble’
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.
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.
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