What to Worry About

We do not believe the circumstances of the late 1990s are a reasonable analogy for aspects of the AI boom now.  There is no impending housing price collapse (2007) or oil price collapse (2014) to drive earnings downwards.  Today’s profitable, leading  technology companies are unlikely to see a decline in earnings growth in 2026.   Some of the infrastructure being built today will suffer rapid obsolescence.  However, the adoption of AI across the broader US and global economies will occur much more quickly than the use of the internet or the household purchase of PCs. 

That said, there are meaningful risks associated with the growing share of client portfolios now overly-exposed to tech shares after years of double-digit appreciation.  Today’s profitable and unprofitable AI infrastructure equities would fall sharply if AI spending falls – though that’s not likely in 2026.   Moreover, the Fed will soon stop shrinking its balance sheet and reduce rates again soon, further reducing the hurdles to investment in the economy and markets.   

Investors, focused on technological breakthroughs and the economy’s resilience, have been deservedly optimistic.   Even so, we are focused on diversification, globally and into industries like health care that have been treated harshly by markets in spite of their intrinsic earnings growth prospects.