Artificial intelligence continues to capture attention across both headlines and markets. Yet one question remains central: Is the current surge in AI investment sustainable?
In Episode 5 of Quarter Over Quarter, hosts Don Drury and Tom Moran were joined by Tyler Hardt, CFA, Portfolio Manager at Moran Wealth Management®, to discuss the momentum surrounding artificial intelligence, its similarities to prior market cycles, and the areas where investors may continue to find long-term value grounded in fundamentals.
Market “Euphoria” Creeping In
Hardt began with a review of the third quarter, which delivered stronger performance than many expected. Equity markets continued to advance despite signs of slowing growth and uneven economic data. Technology and AI-related stocks led much of this strength, while sectors tied to industrial production, transportation, and manufacturing experienced softness.
Hardt observed that “a degree of euphoria has crept back into the market,” driven largely by optimism around artificial intelligence. He noted that the economy appears divided. Higher-end consumers and companies focused on data centers have remained resilient, while cyclical and industrial sectors are showing more signs of fatigue.
The AI Spending Boom and the Risk of Excess
A central topic of the discussion was whether today’s investment in artificial intelligence reflects conditions similar to previous periods of speculative excess. Hardt noted that capital spending related to AI has reached approximately 1.5 percent of gross domestic product, a level comparable to earlier technology surges.
Large corporations such as Google, Meta, Amazon, and Microsoft are allocating substantial resources to AI infrastructure. However, revenues tied to these initiatives have not yet increased at the same pace.
Moran observed that roughly three quarters of the market’s total return this year has been driven by companies linked to artificial intelligence. He questioned whether that degree of concentration may signal overextension. Hardt agreed that if earnings growth does not begin to align with investment spending, the pace of AI development could moderate, which may influence overall market performance.
He also raised the issue of “revenue round-tripping,” in which companies invest in one another’s AI ventures using borrowed funds. This can temporarily inflate growth figures without producing corresponding profitability, echoing behavior observed during the telecom cycle of the early 2000s.
Where Value Investors Are Looking Instead
Despite the speculative tone surrounding AI, Hardt identified opportunities in several areas that appear undervalued relative to fundamentals. He emphasized healthcare, where major insurers such as UnitedHealth and Elevance have seen significant price declines, as well as energy, where natural gas and oil producers could benefit from increasing global demand and historically low inventories.
He also mentioned gold miners and storage chip manufacturers such as Micron and Seagate as examples of companies gaining traction. In his view, these areas reflect a shift among some investors toward assets linked to tangible value and real-world infrastructure.
Retail Activity and Late-Cycle Behavior
The discussion also touched on the rise in retail trading and a renewed appetite for speculative initial public offerings. Hardt compared the current market environment to conditions seen in 2021, when unprofitable technology firms and special purpose acquisition companies experienced sharp price increases before undergoing corrections.
He suggested that if momentum begins to fade, investors may once again favor companies with stable earnings, durable cash flows, and measurable intrinsic value.
Looking Ahead: Momentum Until It Doesn’t
When considering the outlook for 2026, Hardt described expectations for a slower economic environment and the potential for a mild recession. Moran noted that corporate earnings may begin to show greater variation across sectors, particularly within technology companies that are priced for continued rapid growth.
Drury concluded that “momentum will carry markets until it doesn’t,” emphasizing the cyclical nature of investor sentiment. Moran added that “buying on the dip has worked for many years, but it does not work forever.”
Both perspectives highlight the importance of maintaining discipline and a focus on fundamentals, especially in an environment influenced by enthusiasm and concentrated leadership.
Understanding where momentum meets fundamentals is key to long-term success. For a deeper look at how our team approaches changing market dynamics, visit MoranWM.com/Insights.