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AI Isn't Going Away, But.... |
11/15/2025 |
A review of interest rates, precious metals, economic data, and government shutdown news.
The U.S. government shut down for the first time in seven years on October 1st. Politicians hope voters will blame the other party. Voters may barely notice at all. Outside the federal government, the shutdown has little practical impact on most people’s day-to-day lives. The last shutdown, which occurred during President Trump’s first term, was the longest in history at 35 days yet barely registers today as a storyline from that era.
Official economic data is not being released during the shutdown. ADP’s private employment report showed a small reduction in jobs in September, with annual pay per job up a robust 4.5%. ADP chief economist Nela Richardson underscored a disconnect between declining private payrolls and ostensibly strong second quarter real GDP growth of 3.8%, as reported on September 25th.
Artificial intelligence could be crimping the employment market. Trillions of dollars are being spent on data centers and computing hardware for artificial intelligence, boosting GDP. To the extent that these investments boost human productivity, it makes sense to see less demand for human labor and, simultaneously, higher wages for the workers who remain necessary and useful.
The economy seems to keep getting more bifurcated. Jaime Dimon warned of a worsening credit environment, as evidenced by JPMorgan Chase’s $170 million loss in the bankruptcy of subprime auto lender Tricolor Holdings. At what point does the economy become like the golden statue that tumbles due to its feet of clay?
Friday, October 10 saw a rare slip in the stock market’s long melt-up, with the major indices down between 1.9% for the Dow 30 and 3.7% for the NASDAQ.
Meanwhile, Bitcoin ended the day down nearly 10%, with less prominent crypto assets down even more. Grant’s Almost Daily estimated the aggregate 1-day decline in value for all crypto assets as $500 billion, or 12%. That’s the rough equivalent of the Dow dropping 5,500 points—another day in the life of a crypto investor.
The catalyst for the drop was an escalation of trade tensions between the U.S. and China. President Trump threatened higher tariffs in response to Chinese export restrictions on rare-earth minerals that are a key input for many advanced manufacturing processes. Trump then pivoted to a more measured tone while directing Treasury Secretary Bessent to play bad cop against China in public.
The renewed trade tensions with China particularly impacted the stock market’s AI trade, with chip stocks such as NVIDIA and AMD among the hardest hit. Where else can the market be hit? AI has remained the dominant theme as investors are emboldened by success and also fear being left behind by the next great technological revolution. When greed and fear point in the same direction, watch out.
Skepticism is met with the refrain, “AI isn’t going away.” While true, the question remains where will the money come from to justify this massive AI investment? More and more, the answer seems to be that the money will come from other AI companies.
OpenAI’s tools offer perhaps the world’s best proof of concept that AI is much more than a cute toy. That doesn’t necessarily mean that the value its customers derive accrues to OpenAI, however. Revenue trickles in, while investment gushes out. OpenAI consistently burns billions of dollars to maintain its leading position. The company is partnering with its vendors to finance its cash burn.
The fundamental nature of all these deals is that the vendor pays OpenAI to buy its products. Every partnership is met by wild bullish confirmation in the stock market. NVIDIA jumped on an OpenAI partnership. Then Oracle jumped even more on its own partnership, then AMD, then more recently Broadcom. Then Oracle partnered with AMD, causing both stocks to rise. Who ultimately makes the daisy chain worthwhile?
One could imagine a world in which paying somebody to buy your products is perceived as bad business, but these arrangements are currently treated as positive evidence that a few dominant players are rising to own the future of AI, much the same way that a few platform companies came to dominate consumer technology.
AI isn’t going away, but its cost will probably come way down. What technological breakthrough ever saw mass adoption before first seeing an exponential downward bend in its cost curve?
People excited about the future of AI should be rooting for this to happen as soon as possible. As long as the hardware vendors set their prices in a circular market, they can pass chips and servers around to each other at whatever prices please them. Ultimately, the music only stops when investors quit replacing whatever money that leaks out of the largely, but not entirely, closed system.
Pivoting from the technology of the future to the currency of ancient history, precious metals continue to soar. Their move predates the government’s shutdown and is hard to attribute to any single catalyst. Whatever happens in the world always seems to be good for gold, silver, platinum, and palladium. “Doctor Copper,” the metal with a Ph.D. in economics, is hovering around its multiyear highs of $10,000 per ton but seems stubbornly reluctant to break any higher.
Will the forces driving the metals trade ultimately overwhelm the uncertainty facing industrial markets that use copper, or does limited industrial demand set copper’s ceiling? The metal remains noncommittal. Isn’t that just like an economist?
Some analysts have proposed that faith in government-backed currencies is eroding, spawning a global debasement trade. The theory will feel satisfying to deficit hawks and proponents of alternative currencies such as crypto and gold. It might also help explain the never-ending bid beneath the stock market. Maybe markets are not going up; maybe the currency units in which we measure markets are shrinking.
The flaw in this theory is long-term interest rates, which remain stable. The bond market is much larger than markets for gold or crypto, larger even than the global market for publicly traded equity. Bond investors seem to trust that central bankers will navigate a middle ground that protects the value of their currencies.
Indeed, both the Federal Reserve and the European Central Bank have adopted measured tones regarding the forward path of short-term interest rates, as inflationary risks and economic risks appear equally balanced. A debasement trade would imply rising interest rates as investors in fixed instruments demanded greater paybacks to offset the erosion of their buying power over time. It is hard to believe in a trade that dominates every market except the one it affects the most directly.
Then again, mistakes do happen. Back in 2021 the global bond market largely failed to anticipate the effects of a reopening economy against the background of stimulus-induced monetary expansion. When rates started rising in 2022 bond investors quickly lost trillions of dollars, touching off a minor banking crisis which was thankfully contained by stronger operators subsuming weaker ones.
Heading into third quarter earnings season, easing short-term interest rates and stable-to-declining long-term rates could provide a positive backdrop for economic growth. The market’s seeming crosswinds might resolve favorably.
As AI eventually pivots from unconstrained hype to more balanced, profit-driven substance, other industries will have to carry the baton of economic growth.
Investors should stay open minded and continue to practice diversification. Trees don’t grow to the sky, but the economy does grow over time and reward its participants.
Artificial intelligence could be crimping the employment market. Trillions of dollars are being spent on data centers and computing hardware for artificial intelligence, boosting GDP. To the extent that these investments boost human productivity, it makes sense to see less demand for human labor and, simultaneously, higher wages for the workers who remain necessary and useful.
The economy seems to keep getting more bifurcated. Jaime Dimon warned of a worsening credit environment, as evidenced by JPMorgan Chase’s $170 million loss in the bankruptcy of subprime auto lender Tricolor Holdings. At what point does the economy become like the golden statue that tumbles due to its feet of clay?
Friday, October 10 saw a rare slip in the stock market’s long melt-up, with the major indices down between 1.9% for the Dow 30 and 3.7% for the NASDAQ.
Meanwhile, Bitcoin ended the day down nearly 10%, with less prominent crypto assets down even more. Grant’s Almost Daily estimated the aggregate 1-day decline in value for all crypto assets as $500 billion, or 12%. That’s the rough equivalent of the Dow dropping 5,500 points—another day in the life of a crypto investor.
The catalyst for the drop was an escalation of trade tensions between the U.S. and China. President Trump threatened higher tariffs in response to Chinese export restrictions on rare-earth minerals that are a key input for many advanced manufacturing processes. Trump then pivoted to a more measured tone while directing Treasury Secretary Bessent to play bad cop against China in public.
The renewed trade tensions with China particularly impacted the stock market’s AI trade, with chip stocks such as NVIDIA and AMD among the hardest hit. Where else can the market be hit? AI has remained the dominant theme as investors are emboldened by success and also fear being left behind by the next great technological revolution. When greed and fear point in the same direction, watch out.
Skepticism is met with the refrain, “AI isn’t going away.” While true, the question remains where will the money come from to justify this massive AI investment? More and more, the answer seems to be that the money will come from other AI companies.
OpenAI’s tools offer perhaps the world’s best proof of concept that AI is much more than a cute toy. That doesn’t necessarily mean that the value its customers derive accrues to OpenAI, however. Revenue trickles in, while investment gushes out. OpenAI consistently burns billions of dollars to maintain its leading position. The company is partnering with its vendors to finance its cash burn.
The fundamental nature of all these deals is that the vendor pays OpenAI to buy its products. Every partnership is met by wild bullish confirmation in the stock market. NVIDIA jumped on an OpenAI partnership. Then Oracle jumped even more on its own partnership, then AMD, then more recently Broadcom. Then Oracle partnered with AMD, causing both stocks to rise. Who ultimately makes the daisy chain worthwhile?
One could imagine a world in which paying somebody to buy your products is perceived as bad business, but these arrangements are currently treated as positive evidence that a few dominant players are rising to own the future of AI, much the same way that a few platform companies came to dominate consumer technology.
AI isn’t going away, but its cost will probably come way down. What technological breakthrough ever saw mass adoption before first seeing an exponential downward bend in its cost curve?
People excited about the future of AI should be rooting for this to happen as soon as possible. As long as the hardware vendors set their prices in a circular market, they can pass chips and servers around to each other at whatever prices please them. Ultimately, the music only stops when investors quit replacing whatever money that leaks out of the largely, but not entirely, closed system.
Pivoting from the technology of the future to the currency of ancient history, precious metals continue to soar. Their move predates the government’s shutdown and is hard to attribute to any single catalyst. Whatever happens in the world always seems to be good for gold, silver, platinum, and palladium. “Doctor Copper,” the metal with a Ph.D. in economics, is hovering around its multiyear highs of $10,000 per ton but seems stubbornly reluctant to break any higher.
Will the forces driving the metals trade ultimately overwhelm the uncertainty facing industrial markets that use copper, or does limited industrial demand set copper’s ceiling? The metal remains noncommittal. Isn’t that just like an economist?
Some analysts have proposed that faith in government-backed currencies is eroding, spawning a global debasement trade. The theory will feel satisfying to deficit hawks and proponents of alternative currencies such as crypto and gold. It might also help explain the never-ending bid beneath the stock market. Maybe markets are not going up; maybe the currency units in which we measure markets are shrinking.
The flaw in this theory is long-term interest rates, which remain stable. The bond market is much larger than markets for gold or crypto, larger even than the global market for publicly traded equity. Bond investors seem to trust that central bankers will navigate a middle ground that protects the value of their currencies.
Indeed, both the Federal Reserve and the European Central Bank have adopted measured tones regarding the forward path of short-term interest rates, as inflationary risks and economic risks appear equally balanced. A debasement trade would imply rising interest rates as investors in fixed instruments demanded greater paybacks to offset the erosion of their buying power over time. It is hard to believe in a trade that dominates every market except the one it affects the most directly.
Then again, mistakes do happen. Back in 2021 the global bond market largely failed to anticipate the effects of a reopening economy against the background of stimulus-induced monetary expansion. When rates started rising in 2022 bond investors quickly lost trillions of dollars, touching off a minor banking crisis which was thankfully contained by stronger operators subsuming weaker ones.
Heading into third quarter earnings season, easing short-term interest rates and stable-to-declining long-term rates could provide a positive backdrop for economic growth. The market’s seeming crosswinds might resolve favorably.
As AI eventually pivots from unconstrained hype to more balanced, profit-driven substance, other industries will have to carry the baton of economic growth.
Investors should stay open minded and continue to practice diversification. Trees don’t grow to the sky, but the economy does grow over time and reward its participants.
Our two picks for the October 2025 issue represent our team's best opportunities in light of the market's current challenges and tailwinds. The first is a midsized vehicle parts specialist with a big opportunity for significant margin expansion.
Our second selection is a large company in the Basic Materials sector, which should benefit from rising prices for its primary production product in the near- to mid-term.
The commentary is excerpted from the issue of the Investor Advisory Service newsletter published at the end of November 2025. To receive commentary like this in a more timely matter and receive actionable stock ideas each and every month, subscribe today. The Investor Advisory Service stock newsletter was named to the Hulbert Investment Newsletter Honor Roll for the 16th consecutive year for outperforming every up and down market cycle since 2007.
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