Macro Minute: Week of August 18, 2025
Last week, I wrote about the spending bonanza that is happening around AI. I also wrote about the Vanguard perspective on AI a few weeks back. Today, I want to put together some thoughts around what could be shaping up to be a great opportunity and a caution on excess.
To start, I want to bring back the concept from Vanguard of a General Purpose Technology (GPT). If AI ends up being a strong GPT, then we have multiple historical precedents to glean from. If we think back to electricity adoption in the United States, it brought about massive revolutionary change. That is an example of a strong GPT. It changed everyone’s lives. In markets, it made way for the industrial revolution. It was a major step forward in productivity after that technology was adopted and assimilated into society.
That is the great opportunity of a GPT. It changes society. It makes things once reserved for a select few commonplace. A new GPT requires great investment to build out the infrastructure to support the new technology at scale. Think about the TVA in our electricity example. The TVA would go around installing power lines and having big roadshow examples of how electricity could be used in ovens and washing machines and the like. This was a big expense. After 20 years, people probably had a hard time remembering a time without those technologies.
Another example of a GPT is the internet. In the late 1990’s as this technology was being rolled out, it took a large investment. We saw large CapEx budgets then like we do today for AI. Here is my cautionary tale – the investment public went to great pains to invest in anything related to this new technology without any consideration of the probability of success of the company. Investors rushed into a “fear of missing out” mania without considering the price being paid or viability of the underlying company. This surge in investor interest drove huge returns in the technology-heavy Nasdaq 100 at the time.
What it also did was create a huge bubble that took the Nasdaq 16 years to recover back to those mania highs. Meanwhile, the actual efficacy of the GPT revolutionized our society and work. It changed the way we shop by the rise of Amazon and revolutionized mundane industries like insurance with the rise of geico.com. This is the great hope and caution of investing through a GPT cycle. It is easy to be caught up in the hype because the GPT causes great imaginative stories of a better future. Often the companies casting that vision gobbles up investor interest and monetarily benefits even if they are not the company that will economically benefit the most from the GPT.
Let me speak plainly about AI investing. The current large CapEx budgets from the large technology companies are different than the internet boom of the late 1990’s. These large companies are footing the bill but are also beneficiaries of the AI buildout. I do think that if this AI GPT is as successful as hoped, the average company will benefit as much or more than the technology companies building it out. If a service company can now generate as much revenue or more with less input cost due to AI, that company or even the whole industry should rerate higher and deserve a larger premium. Said another way, if AI is as successful as hoped, the average company will make more money and its share price should increase commensurately. So far in this GPT cycle the companies in charge of the build out have benefited most in share price appreciation. In the coming years we may begin to see a broader group of winners as AI changes society the way previous GPT’s have.
DISCLOSURES:
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.