People are sick of hearing about AI.
So this month, I told my team: absolutely not, we are not writing about AI again. I refuse. And here are a few of the stories that we're not going to cover... at all... because everyone's tired of it.
We're not covering the story about IBM having the worst single day in its 115-year history — down 25.2% in one session — because its clients are deferring mainframe upgrades to conserve IT spend for memory chips (for AI) instead. Not touching that one!
We're absolutely not discussing the earnings results from Amazon and Microsoft which grew their cloud revenue at 37% and 43% from a year ago, respectively, on the back of massive capital expenditures (for AI).
And we're definitely not covering the story of the San Francisco AI startup’s offer to interview anyone who got a company tattoo. Nope!
Ok I give up. 🤷♂️
The problem is that it's becoming increasingly hard to talk about anything without mentioning AI.
Apollo Chief Economist Torsten Sløk put it well: "AI has absolutely turned out to be almost everywhere." In a recent interview, Sløk describes what he views as the problem with a balanced 60% stock, 40% bond portfolio. On the surface, it looks diversified. Underneath, something very different is going on.
On the stock side, the ten biggest stocks are heavily levered to AI and now make up 42% of the S&P 500. That's been true for years now — not exactly news.
But it doesn't stop there. On the bond side of the portfolio, companies like Amazon, Oracle, Google and Meta are issuing so much debt that it's changing the makeup of the bond index itself. This year alone, hyperscalers will issue about $700 billion in debt.
And then there's venture capital. It used to be pharma, biotech, prescription drugs, new medical products. Now, 87% of venture capital is AI.
The new 60/40 portfolio, according to Sløk, is really 60% AI and 40% Not AI.
So what can you do about it? A few thoughts.
- Replenish Your Cash Reserves. When we meet with clients to update our 360˚ Views, we're checking for two years of living expenses, net of any income received, in cash. By income, we mean dividends, interest, wages, social security, pension, etc. And by cash, we mean checking, savings, money market, CDs or short term bonds.
Take a 70 year old couple drawing from their portfolio. If they live on $200,000/year, but have $100,000 in income from dividends, interest, and social security, We'd want to see $200,000 in cash reserves ($100,000 net living expenses x 2 years) either in the portfolio or outside it in bank accounts.
Why? If we hit an air pocket with AI, having cash set aside protects the couple from being a forced seller in a down market, and provides them the optionality to withdraw from cash instead.
- Own Some International. International stocks are kind of like the New York Knicks of the investment universe: Bad for a really long time, but now, pretty good.
After underperforming US stocks for the last 15 years, international stocks have outpaced U.S. stocks for the last two years. But what makes them attractive now isn't that their recent track record, it's that their exposure to AI is much less than the S&P 500. The reason is that foreign markets have about half the tech exposure than U.S. stocks, and a lot more exposure to financials and industrials, which are less sensitive to AI.
- For Business Owners: Recognize Where We Are In The Cycle. IBM learned the hard way that companies are getting more disciplined about their IT spending. The ballooning capex budgets from companies like Google, Amazon, and Microsoft show how much more capital-intensive the tech sector has become seemingly overnight. This year, those three companies alone will spend $600B, with more hinted at next year. These are indications of an inflection point, and provide few implications worth thinking through:
- We're likely transitioning out of the "blank check" spending environment for AI and into one where companies start weighing actual returns before they write the next check. If a customer suddenly has to justify AI spend against measurable ROI instead of urgency, how does that change your sales cycle, your backlog assumptions, or how quickly deals that looked "done" actually close?
- At the margin, more debt issued by tech companies pushes rates higher for everyone. Rates on 10 year treasuries are up half of a percent this year and 30 year bond rates haven't been this high since 2007. Both are part of a larger trend of rising capital costs since 2022. If your business carries meaningful debt, are you prepared for a higher rate environment as more of this AI-driven supply hits the market?
- Understand that this may be as good as it gets for a while. On top of the AI buildout adding roughly a full point to GDP, we're also getting a similar boost this year from the One Big Beautiful Bill's tax refunds. 2027 won't have that tailwind. Do your own growth forecasts already account for that?
You don't have to predict where AI goes from here. You just have to make sure you're not betting your whole hand on being right about it.
Here's what you need to know.
Markets
News & Notes
- Fed [Video]: Bond King Jeff Gundlach reacts to the Fed's decision to hold rates steady and what he believes it means for markets. (CNBC)
- WSJ Money Interview [Video]: Robinhood co-founder Baiju Bhatt discusses the founding of the online trading platform and his own money philosophy. (WSJ)
- Jobs: After a year of holding back on new hires, companies from tech and transportation to defense now say they need more people to work alongside AI (WSJ)
- Management: The number one office amenity needed to elevate your team's performance. It's not complimentary coffee, a gym, or a ping pong table. (HBR)
- Bonds: U.S. 30 Year Bonds are hitting yields not seen since 2007. That's not a great sign. (WSJ)
- Recent Grads: More young adults are living with their parents. The development suggests that they face a weak job market, but also that fewer face stigma in returning to the roost. (NYT)
- Travel & Spend:
36 Hours: Bruges, Belgium (NYT)
36 Hours: Oregon Coast (NYT)
36 Hours: Philadelphia (NYT)
(Pie)Chart of the Month
Market Concentration by Country
Top ten company share of country equity index market capitalization. Surprisingly, the U.S. is actually on the lower end relative to the rest of the world.
Firm News
Introducing the Wealth360 Plan!
Are we on track for retirement?
Are we putting enough away for college?
How can we lower our tax bill?
To answer these questions, we're introducing a flat-fee financial plan for people who just want a "compass check" on their wealth journey. The Wealth360 Plan covers everything from cash flow to legacy planning — two meetings, one flat fee, and a full year of follow-up.
Click here for more details.
Great Faces. Great Places.
Sarah & Ethan went to South Dakota, and then did some interior decorating in the new office.
Smiling Faces, Beautiful Places.
Will and family went to Kiawah for the Fourth.
First in Flight.
Cate, Ben & Jack helped the Raleigh Racquetfish summer swim team win the Division IX trophy! Go Racquetfish!
Happy Summer!
