Q4 2025 - Infrastructure Wars
2025 might be looked at in history as the start of the AI infrastructure wars. Eye-popping investments by the so called “hyperscalers” have driven stocks higher in another strong year for the investment markets. While tariffs and a new regime in power provided some headwinds, companies shook off the worries and kept up the momentum for the creation of another technological revolution. Investors must wonder whether they’re looking at a boom that will change the world or a bubble that will burst like Pets.com of 2000?
AI has emerged as the centerpiece of the US (and global) economic growth story — a young but rapidly advancing technology with the potential to transform how the world produces, consumes, and monetizes; much as technology reshaped the world 100 years ago.
I continue to believe that, over the long run, AI will significantly boost productivity and earnings, and that supports equities. However, investors should be realistic: the current phase is less about whether AI is real — it is — and more about how profits from that productivity are divided among chipmakers, cloud platforms, and software providers, and what competition does to the returns on capital of these massive investments. That said, you can see from the image below where we stand vs. other historic buildouts.
What’s the bull and bear case for AI? The bull case highlights its ability to drive productivity, create new sources of revenue, and reward companies with scale and infrastructure advantages. The bear case tempers this enthusiasm with warnings about inflated valuations, uncertain monetization, misinformation generation, regulatory headwinds, and resource bottlenecks. Also in the bear camp is the thought that if everybody builds the same thing, where’s the moat? I still can’t figure out how all these companies are going to make money when they’re all building similar products. Am I too optimistic? I don’t think so. Will we have corrections and bear markets going forward? Absolutely.
The exciting thing is we seem to finally be extracting ourselves from the “only invest in the US” world that has dominated the past decade. And for those worried that in today’s world diversification is dead, take comfort: reports of its death are greatly exaggerated. International stocks outperformed in 2025 and I expect that trend to continue in 2026.
Mixing political views with investment strategy is generally a bad idea. For example, Solar stocks performed terribly under Biden but have done well under Trump. Trump is generally viewed as a ‘crypto president,’ but prices have struggled. Do not let politics get in the way of reality.
As we’ve been apt to do in recent years, in lieu of holiday gifts and cards, Fullerton Advisors made a donation to the Skin Cancer Foundation. Who’s invested in what AI tech? It’s definitely a little incestuous…..It pays to check all the ridesharing apps when looking for a ride. Looking for a movie or a book over the holiday? Here are some folks top movies for 2025 and top books. $415k is the median cost of a home in the US. What will that buy you?
Have a great holiday season and Happy New Year!