Markets accelerated higher in April. US small-cap stocks did best, but large-cap and international also did well. Bonds, while much less volatile, also increased. For the year, the bull market, which began in 2022, continues.
Financial Planning Association – All-Ohio Symposium
The final habit of Stephen Covey’s bestselling book The Seven Habits of Highly Effective People is “Sharpen the Saw.” Covey tells an analogy of a lumberjack who exhausts himself by only focusing on cutting wood. If he takes the time to sharpen his saw, he becomes more productive and efficient. Otherwise, his blade becomes dull, and he while he works harder and harder, his work becomes lower quality and less beneficial to others.
Our advisor team recently traveled to Columbus to attend the Financial Planning Association’s All-Ohio Symposium. Getting out of the office, spending time as a team, and attending the sessions help us sharpen our saws with the goal of staying effective and serving you well. We listened to speakers on a variety of topics from tax planning and trusts, to investments and college planning.
A Global Market Strategist at JPMorgan, Stephanie Aliaga, gave an interesting overview of Artificial Intelligence. Her talk touched on the speed and advancement of AI, the economics of AI adoption, as well is the impacts on market leadership and other sectors impacted by the AI supply chain. Her talk compared and contrasted the current rise of AI to the last major technology boom and bust – the internet and dotcom cycle during the late 1990s and early 2000s. During that time, companies made major investments in fiber cables and wireless networks to allow for more internet use and traffic. The magnitude of AI infrastructure investment is similarly enormous, as shown in the following graphic:
The left graphic shows the amount of money today’s tech giants have invested in data centers, semiconductors, networking, and power generation. As you can see, the amounts are staggering and expected to continue to grow. What if all of this investment doesn’t generate attractive returns, or is wasted?
The graph on the right provides some context. During the dotcom boom, Ms. Aliaga stated that most new capital projects were done with borrowed money (credit), while today, the vast majority of AI spending is company operating profits (cash). While this difference doesn’t eliminate the possibility of overspending on the buildout of AI, it does mean less systemic risk of a credit crisis. The estimated cash from operations for the five companies listed is between $650-$700 billion dollars over the past 12 months. In other words, they can afford to spend, and they are likely to continue to make huge future profits also.
Ms. Aliaga also pointed out that in 2002, only 7% of the newly laid fiberoptic cables were used, indicating a massive amount of oversupply relative to consumer demand. Conversely, current AI demand is constrained by infrastructure and power supply. Bottlenecks show that we would use more AI if enough energy and semiconductor chips were available.
This is just one example of how sharpening the saw can help us serve you better. If you would like to talk more about the symposium, please let us know.
