The artificial intelligence (AI) trade is driving the US stock market (^DJI, ^GSPC, ^IXIC) to fresh record highs.
Interactive Brokers chief strategist Steve Sosnick and Annex Wealth Management chief economist and strategist Brian Jacobsen join Morning Brief to discuss the AI-related market dynamics.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief.
00:00 Speaker A
You see, when you talk about that, uh, sort of almost nothing matters in this market in terms of things that can slow it down. I mean, part of it is because we have the support of this, this spending cycle on AI, and I know there have been some questions recently about the sustainability and the return of that cycle. So I’m curious about your current thinking on kind of where we are and how much more we could see this fuel the rally.
00:33 Speaker B
Yeah, Julie, the questions have tended to come from, you know, people who who were around during the last cycle, you know, the internet bubble, meaning old people for lack of a better work. But um, you know, I I there are history doesn’t repeat but it often rhymes. And and I’m starting to think in terms of the data center build out that we’re seeing something akin to the bandwidth roll out that we saw late 99, early 2000,
01:05 Speaker B
um which ended up we needed the bandwidth when all was said and done, but the companies that were doing it, Global Crossing, Northern Telecom, and of course I don’t want to bring up I I have to bring up Enron and Worldcom which were which were actual frauds, but you ended up with all those companies being broke. Um, and so I do think when I start to do the numbers on some of the the data center build out, you know, Oracle, it’s great that they signed a 300 billion dollar contract with with Open AI, but
01:37 Speaker B
um as of the last reading, their their annualized revenues are 12 billion a year. I don’t know where they’re going to come up with $300 billion. Uh, probably not organically. So there’s this tremendous amount of money that needs to be raised. Um, to Veronica’s point, you know, they may say that conditions are a little bit tight out there, but right now money is being thrown around, um, you know, any without even regard to whether these deals are going to be profitability. Companies are getting rewarded
02:11 Speaker B
for spending on AI without real regard to whether these are going to be long-term profitable investments or without figuring out whether whether these are all are all feasible. So I do think we’re sort of in that euphoric stage of a bull market right now when it comes to AI. Um and you know, you know that euphoria is going to break at some point, but it it can break tomorrow, it can break six months from now, it could break, you know, years from now, but I do think we’re in that sort of period when
02:44 Speaker B
uh and that’s why I use the term nihilism because if if if return on investment, if if we need to borrow incredible amounts of money or equity finance incredible amounts of money without regard to returns, that sort of defines nihilism.
03:02 Speaker A
Brian, do you think that that we’re we’re getting bubbly here or that do you share some of Steve’s concerns about this sort of lack of return?
03:15 Speaker C
Well, I I share his concerns certainly. I’m not quite sure that we’re fully all in on the euphoria phase. You know, if you think about Sir John Templeton, his of kind of framework about the bull markets about starting on you’ve got the pessimism, then skepticism, then optimism, then euphoria. We might be teetering on the euphoric part with some businesses, but we’re not seeing a huge amount of the debt fueled growth, right? It’s does seem like, hey, these companies that are investing in data centers
03:49 Speaker C
are still really raking in the cash. So it’s equity finance, but Yahoo Finance had a great article that I was just reading this morning about there is now some of this off balance sheet, perhaps a little bit of accounting shenanigans, if you want to call it that about creating special purpose vehicles to finance it. So, I think it’s more a question of where are we within that spectrum of going from optimism to euphoria. Um, but when we look at other companies, right, think about small caps, mid caps that aren’t caught up
04:22 Speaker C
in the AI craze, I think that’s where more of the opportunities are and that’s how we’ve been positioning portfolios is, yeah, kind of uh stay a little close to the exits when it comes to uh trying to bank on continued growth just because it’s, you know, data center builds out. Think about where you are in terms of some of the other opportunities.
04:46 Speaker A
Mhm.
