In case you have been living under a rock, “AI” is artificial intelligence. The bulls think it will lead to the next industrial revolution and that it may even be bigger than the Internet. The bears say, “where’s the beef?” and doubt whether the billions now being spent on AI infrastructure will ever really generate an adequate ROI (return on investment).
“AI on or off?” is the key question for the market and not just for tech investors. Why? Because over 40 percent of the weight of the S&P 500, America’s most popular stock index and market barometer, is in tech and other “techish” stocks.
My portfolio was up 60 percent in 2024’s first half with concentrated bets on AI infrastructure builders featuring semiconductor, networking, and server names. But since then its value has dropped a bit because the AI doubters now control the investment narrative.
Interestingly, I also am skeptical about AI’s ultimate ROI, but I am still all-in the infrastructure stocks because I think the AI nuclear arms race will continue for at least another year or so. I just buy the weapons suppliers. That being said, investors are rotating out of tech, and companies are reporting their quarterly earnings, which is always anxiety-ridden, so I am sitting on my hands until we get through at least most of these announcements and after the prices of my favorite AI infrastructure stocks have settled. I will let you know when I am back buying with both hands.
I have been asked about how a President Trump will impact tech investors. I think that he will be ruthless with the social media companies like Meta and TikTok, which is Chinese owned. However, he is a light regulation guy, so I think that his presidency will benefit other tech companies. Note that his VP pick, JD Vance, was Silicon Valley’s choice. Vance is an ex-venture capitalist.
As to our frayed relations with China, which figures into the tech investment calculus, they were bad in Trump’s first administration and they only got worse under Biden, so expect no change there to what geopolitically causes worldwide anxiety.
Expect the Federal Reserve Board (Fed, our central bank) to begin to lower interest rates on September 18. Inflation has come down and continues to trend in the right direction for the Fed to take this step. This should be a salve for investors, and I bet we avoid a recession. This would be remarkable because usually when rates rise so high -- the fed funds rate went from essentially nil in March 2022 to 5.25 to 5.50 percent today -- an economic beating is inevitable. Despite the criticism of Fed Chairman Jay Powell, I think that he and his team have handled monetary policy pretty well despite the awful hand they were dealt.
Stay tuned. I will be back with more market intelligence, but just let me listen to dozens of quarterly financial results conference calls first.