Currently, four tech firms have announced that over the next three years they intend to spend a collective $710 billion to establish dominance in Artificial Intelligence (AI). The stock market has bid up the prices of their shares in reflection of the individual potential of the companies to excel in the AI space.
These firms are also the same large technology companies that have led the market for the past decade. Amazon, Alphabet (née Google), Microsoft, and Meta (née Facebook) have all launched multi-billion-dollar efforts to be the company who sets the AI industry standard. The precedent is the way Microsoft came to dominate personal computers in their infancy by making Microsoft’s source code accessible to any developer who was willing to utilize it. Microsoft made its money by charging personal computer makers to load Microsoft’s software onto their machines. Without some version of what eventually became known as Windows, personal computers could not use windows-compatible programs.
Apple took the tack of wanting to profit from both the sale of the machines and the software applications. Because they insisted on receiving a royalty on each Apple program loaded and a profit from the assembly of the machines themselves, Apple had higher profit margins than Microsoft. Microsoft, however, became the larger company and more profitable in dollar terms, having at one time an 85 percent share of the personal computer market. Like the first effort to set the industry standard in personal computers years ago, there will probably be one or at most two firms to set the standard and dominate AI. This means that two or three companies will have probably a negative return on their billions in investments.
What motivates the companies to make a financial bet of this size is their own survival. Much has been written about how AI will eliminate jobs. Less well known is how AI will eliminate applications. If one tech company has to use another firm’s AI, it may not have access to the public who is requesting the information. The owning AI firm will reap the profits from advertising, data capture from searches, any subscription sales, etc. Seen this way, AI is a threat to all big tech firms, as well as any number of content providers. Bear in mind that the four AI services are incompatible. The public is not going to want to jump from one AI to another. They will settle on one. Two at the most.
The stock market at this time is rather naively promoting all companies associated with AI. In the early stages of a mania, there is this idea that any firm with a connection to the mania will do well. Unfortunately for many investors, that is not how capitalism works. In the end, there will be some opportunity of some finite size to capitalize on. How well firms do depend on how broadly the opportunity is distributed, as well as their own strategy to succeed and how many firms remain in contention when capital dries up. Seen this way, applying more capital to an opportunity drives the return on those funds down. Investors oftentimes seem to think it drives returns up. The dot.com era of 25 years ago is an excellent case study of how few firms survive when capital is no longer freely accessible.
As for technology itself, this may be a time of self-assessment. The sector and especially its largest players have become a stock market force unto themselves. The ten largest stocks by market capitalization make up almost 39 percent of the supposedly diversified Standard and Poors 500 stock index. Technology makes up seven of these ten stocks. Nvidia itself is 7.7 percent.
However, if one shifts focus from the stocks to the companies, one sees a scene not unlike the crime families of New York. Whereas they were once content with their own area of expertise, a desire for growth and perhaps a fear of annihilation is now seeing each getting onto the turf of the other. This usually does not end well for the mafia families or for stocks.
Finally, it is good to remember that the real beneficiaries of technology are often not the technology itself but what it can do. We adapt technology into our daily lives, and this is a real investment opportunity. As the cost of adopting technology declines, its application increases. While the use of AI has been portrayed as a job killer, it may be more of a way to enhance the use of data in ways not seen before by people who previously had no access to the same. Whether AI is a force for good or ill will depend on those using it. In technology, that has always been the case going back to the creation of fire.
The Economy
Watching for a recession, which has been predicted for a while, is getting a little old. The economy continues to grind out jobs while layoffs seem steady. This macro data hides the crosscurrents of white-collar layoffs as jobs formerly the providence of immigrants are vacant.
The data will be in for a jolt if the government shuts down in the near future. A lot will depend on the duration and will to create and pass a new budget. Unfortunately, crafting a budget is months behind schedule. While the federal budget has been hostage to this situation for years, the tolerance of the public for incumbent politicians may be running out.
As stated previously, the best approach may be to have an honest debate about what the citizens want the government to do, what it costs, and how to pay for it. Whether this can happen is anyone’s guess.
Inflation
Inflation is becoming too hard to ignore for too much of the consuming public. While the price of gasoline is going down, the cost of groceries continues to rise. Fresh fruits and vegetables are increasingly being imported and reflect tariffs. Insurance has gotten to levels where people weigh the odds of going without. This is not a good situation.
Looking ahead, it does not appear to be a lot on the horizon to change inflation’s trajectory. Tariffs are still percolating through the economy. Christmas is expected to be a shocker in terms of the cost of imported gifts, presents and decorations. Data centers’ electricity use drives up the price for consumers, to their resentment.
Interest Rates
There was recently a quarter point cut in the short-term rate by the Federal Reserve. It so far has appeared to have no effect on government bond yields. Some say this supports the idea that interest rates need to drop more. Others say that interest rates below the inflation rate risk creating an inflationary cycle similar to the one eventually broken by Paul Volcker in 1980.
The Stock Market
After slowly grinding higher all summer, the stock market has begun to look a bit choppy. In truth it has been two stock markets this year. One, consisting of the ten largest companies, is up 19.84% percent year to date.* The rest is collectively flat.
The theme of this market is AI. Who will prosper from the same, etc. The rest of the market is burdened by matters like economic forecasts, the business cycle, etc. AI, with no history, can be whatever anyone wants it to be. This has led to some predictions that will in a few years’ time border on the comical.
The current situation throws light on the role of Wall Street. Many people feel the brokerage industry is for the purpose of making them money. Actually, that is not completely true. The purpose of Wall Street is to raise capital for corporations. If someone makes money, then that is a byproduct of the main purpose. When markets go up almost consistently for up to 15 years, that is often forgotten. When it stops going up, it will be reinforced.
Warren M. Barnett, CFA
September 29, 2025
Financial Services Offered
At Barnett & Company, we understand that your financial future is not just numbers on a balance sheet it’s your dreams, your hopes, and your legacy. Our passionate team is dedicated to crafting comprehensive financial planning services that align with your unique aspirations. Whether it’s managing your assets with utmost care or creating a thoughtful estate plan to protect what matters most to you, we are here to guide you every step of the way. Take a bold step toward securing your future—visit barnettandcompany.com to learn more or reach out to Jessica Bingham at 423-756-0125. We can’t wait to partner with you on this journey!
Barnett & Company is a fee-only investment adviser registered with the U.S. Securities & Exchange Commission. Registration does not imply a particular level of skill or training. Investing involves risk, including potential loss of principal. This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future. Barnett provides services designed with the investment and financial planning needs of individual and organizations in mind. Those wishing to discuss their investments and financial plans with Barnett & Company and have investable assets of $500,000 or more should contact Jessica Bingham at 423-756-0125.