The Iran war is not over, but don’t tell the stock market. What looked like the beginning of a downturn in March quickly reversed in April. Now we’re back making all-time highs again.
Why?
It appears the fear of high oil and gas prices brought about by the conflict has been pushed aside by the hope and excitement of the unending demand for the AI buildout.
Fear and excitement have a funny relationship.
The other day my son Charlie and I were riding our bikes. He was flying down the street on his bike faster than I’ve ever seen him go. I told him to be careful and slow down, but he’s three…
The fear was there, it just wasn’t winning. His excitement had taken over and sure enough… he crashed. His best “owee” yet!
Scraped up, and a little shaken, but not done.
A couple days later, he was right back out there, riding fast again. Not because the risk disappeared, but because the excitement returned.
Markets work the same way. Shaking off the fear in search of new excitement.
The Fear
High oil and gas prices create concern about a slowdown in consumer spending. If we spend more at the pump, we have less for food, clothing, housing, entertainment and everything else.
When the consumer pulls back, companies earn less, and stock prices typically follow.
That fear is real. It hasn’t gone away.
The Excitement
At the same time, a powerful new wave of excitement is building around AI.
What most of us use today, asking tools like ChatGPT questions is often called generative AI. It answers.
The next phase, often called agentic AI, does more than answer, it acts. It can plan, execute tasks, and get things done.
That shift matters. Jensen Huang, CEO of NVIDIA, recently said the compute needed for agentic AI could increase dramatically, on the order of “1000% more” than earlier systems.
Whether that number is exact or not, the implication is clear: building this next phase of AI will require massive infrastructure in chips, data centers, energy, and connectivity.
That idea has sparked significant investment in companies tied to the buildout.
What’s Driving the Market
Right now, the excitement around AI is dwarfing the fear tied to oil, war, and economic slowdown.
Just like my son on his bike, the risk hasn’t disappeared, it’s just not what’s driving behavior.
And when excitement is in control, stocks move faster than expected.
What Should We Do?
Our Moderate Funds Portfolio is capitalizing on the run-up in stocks so far this year. No change is needed here. We will continue to benefit as markets respond to this renewed optimism around AI. When stocks inevitably cool off, which is normal, the fund structure should help limit downside relative to the broader market.
The Growth Stock Portfolio, however, needs some adjustment.
This new demand for AI is pushing companies involved in the buildout significantly higher, while the rest have lagged. Our portfolio benefited early through positions in NVIDIA and Taiwan Semiconductor Manufacturing Company, but we believe it’s time to broaden that exposure.
We are currently focused on:
- GE Vernova (GEV): benefiting from increased power demand tied to AI infrastructure
- Corning (GLW): producing fiber optic connections for data centers
- Micron Technology (MU): a key provider of memory needed for AI systems
These companies have already seen strong performance, but the underlying demand driving them may persist. Our goal is to position clients to participate in that long-term trend.
At the same time, we’re trimming winners that have done well. Just this week we trimmed Fortinet FTNT a cyber security company that had fantastic earnings. We’re also reducing underperformers that have held us back this year. Selling some of these companies allows us to build cash and take advantage of the next meaningful pullback.
Fear and excitement don’t take turns, they compete, and the excitement surrounding AI is winning. My job is to help clients participate in the excitement without being reckless.
That’s also my job as a dad, but clearly I need more work in that area!
We hope everyone made it through tax season ok! We’ve called most clients to check-in and give an update but we still have a few more to talk with. If you need to call us, you may talk to our newest intern Palmer Smith. Please say hi! He graduated from Willamette University with a Bachelors in Business Administration and is headed back in the fall to get his MBA.
Thanks for reading,
Tim Porter, CFP®