A leaked report from the U.S. Treasury has confirmed my worst fears.
Those fears?
That the entire stock market and by proxy the economy have become one gigantic leveraged bet on the Artificial Intelligence (AI) revolution. As I’ve noted previously, AI-related stocks have accounted for 75% of market gains, 80% of corporate profits and 95% of corporate capital expenditures since the bull market began in November 2022.
As the leaked report notes, “AI investors are taking risks so significant that much of the financial system now rests upon AI meeting expectations for productivity gains and profitability…”
In simple terms, with trillions of dollars in capital betting on AI proving to be a “holy grail” technology that increases productivity, reduces costs, and boosts profits, if AI fails to deliver on these promises, it rapidly becomes a systemic risk.
The report states that a “downturn in the AI market would send shockwaves throughout the entire economic ecosystem.”
How big would these shockwaves be?
The report states that “stock markets, private credit markets, companies financing data center buildouts, cloud providers, chip manufacturers and utilities would all feel the effect.”
Companies financing data center buildouts alone include Amazon, Meta, Alphabet, Microsoft, and Apple. Those companies account for over 18% of the S&P 500’s weighting. Throw in Nvidia, which has recently gotten involved in financing data centers, and the total weight of this segment of the market becomes ~25%.
If those companies go down because AI proves to be a dud, things get UGLY fast.
I bring all of this up because part of the AI trade is already blowing up. In the last few weeks many AI-bottleneck stocks (companies that supply critical components or services to the AI-buildout) have been obliterated with many of them down 20%-50%.
This begs the question… is the AI bust actually just around the corner and the Trump admin intentionally leaked this report to get out in front of it?
I’ll be assessing that as well as which investments stand to generate extraordinary returns from it in this week’s Private Wealth Advisory.
To take out a $2.99, 30-day trial to this service to make sure your account is ready to go when this report hits clients inboxes later this week…
Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
