AI optimism, not exuberance

Q: What is our long-term view on the AI bubble? A: There's a lot of concerns as to whether or not AI is in a bubble. We don't classify it that way. We think we're very much in a boom. As we look at the AI picture, we think the technology is real. We think valuations, while they're high, are not anywhere near a kind of bubble level. We are watching circular financing. We are watching to make sure companies aren't overinvesting. But what we see is something very rational. Big, healthy companies that are investing in AI are doing fine from a market perspective. Companies that aren't as strong, the market's being a little bit more discerning. So we see rational, not irrational, exuberance around AI.

What we're seeing so far this year, though, is that the trade is changing. It was all about Mag Seven before. That has shifted now, and the AI trade is more focused on shortages in areas like memory and areas like, semi-cap equipment. It's also shifting into the old economy, where you're actually engaging in the build-out of all the infrastructure and the data centers, which is a big theme this year. And outside of those positive impacts, we're seeing companies start to get disrupted, or at least their stocks, as AI is challenging certain business models. That's really been a feature of what we've seen in software so far this year. From our perspective, we think that AI really is the driver of the secular bull market that's been in place since 2013. We think we're, you know, middle-aged, at worst, in that secular bull market. And while the nature of, the names that are outperforming around AI is changing, we think the theme continues for some time.

Q: Have any of your surprise predictions for 2026 come true already? A: We have a, a constructive view on the markets and the economy for 2026. We have GDP growing somewhere around 3%. We have inflation coming down towards that two and a half percent range. We have the S&P getting up to 7,800. That said, we have identified some, some positive and negative surprises that we might expect to see this year.

On the negative side, we've seen actually quite a few. We've seen some disruption around AI in certain parts of the market. We've seen some policy, proposals that have caused volatility inside of the markets. but on the positive side, what are we seeing? We are seeing GDP growth come in, you know, stronger than the consensus's expectation. That's similar to our own views. We are seeing earnings continue to grow a little bit faster than what the market's expecting and earnings estimates continuing to rise. What we haven't seen yet, and we do expect to see, is that AI CapEx is going to lead to a stronger-than-expected labor market. And we're early in the year, we still haven't seen that play out. But as we start to get more shovels in the ground, we expect we're going to see a little bit of labor market strength, which is really counter to the consensus's expectation. But outside of some, let's call it, extreme volatility in the first couple of weeks of the year, we still see an economy and market that is on pace to deliver what we expect, which is stronger-than-expected growth and higher stock prices.