Cameron Dawson, CIO, NewEdge Wealth on why U.S. investors may be becoming too dependent on one trend.
Transcript:
Caroline Woods:
Joining me now Cameron Dawson, Chief Investment Officer of NewEdge Wealth. Cameron, great to have you here with me.
Cameron Dawson:
Thanks so much for having me.
Caroline Woods:
So we’re talking AI and I want to kick things off with a question that we have been hearing more and more and want you to weigh in on it. Is AI a bubble? What do you think?
Cameron Dawson:
Well, we can certainly see that there is super normal growth within these AI related stocks. They are experiencing massive growth because of a big, distinct phase of the CapEx build out of this AI cycle. And what’s interesting is because the earnings growth has been so strong, you don’t necessarily have the extended valuations like you saw back in Times like 1999, for example. But that doesn’t mean that these companies aren’t potentially over earning, meaning that eventually this CapEx growth will slow. You’ll kind of hit a capacity as to how much you need, whether it’s that capacity from demand, but also capacity on energy supply potentially. So what we think is that it will be really important to watch the pace of growth of CapEx over the course of 2026 and see guidance if companies are starting to slow that pace, and maybe that will slow the returns of this very, very bullish AI trend, but slow the returns. Doesn’t sound like a bubble popping.
Caroline Woods:
So would your answer be no?
Cameron Dawson:
Well, you know, it’s a really good point because what you see is that when you have hyperbolic moves up, you don’t see them correct. By going sideways. You see them usually correct by going in a straight line down. And that’s a quote from Walter diemer, one of his many laws. And I think it’s an important thing to remember is that we could still be getting into the really heady, kind of ebullient kind of phase of this cycle where people stop asking the question, is it a bubble. Usually when you’re in a bubble. People aren’t asking that question. And so you actually aren’t seeing sentiment as extended or positioning as extended as it was in prior kind of peaks. So maybe some of that could still happen. And drive this and draw this higher. But to your point, a melt up usually is followed by a melt down. So it seems the market has broadened out in terms of leadership, but the eye trade has really been what’s powered stocks higher.
Caroline Woods:
Do you think investors are becoming too dependent on one trend at this point?
Cameron Dawson:
Well, we think so. It’s not just investors. It’s the US economy as well. And we released our fourth quarter outlook a few days ago. And we talked about this circular reference. A lot of people think about the circular reference of what’s going on within this AI financing. But what we said is that AI CapEx is effectively driving the US equity market higher, which is then allowing for more AI CapEx. But then the fact that US equity markets are going higher is boosting the US consumer, because the US consumer is really driven by the top 10% of income earners, which own most of the stock. So you get this Wealth effect. And so that consumer is keeping the US economy afloat in addition to that AI CapEx. So we’re now stuck in this circular cycle where we are spiraling up and benefiting from all this CapEx. But if it were to slow, it raises the question of does that start to potentially spiral down.
Caroline Woods:
And what do you think the answer is?
Cameron Dawson:
I think that we have to respect the trend and respect the momentum, meaning that you’re in a market that is clearly in a very bullish trend. But if we start to see stocks, for example, start not going up on good news every time we get some of these big deals coming up, you see stocks continue to rally, which means you are still very much in an uptrend. But if you start to see some flies start to drop and not having the same kind of positive reactions, it could be an early sign that there’s exhaustion within this trade. But we still think that we have to make sure that you have that you continue to see a strong pace of AI CapEx. If that slows, it’s not just going to have an impact on the market, but also on the US economy.
Caroline Woods:
So I was taking a look at your Q4 investment strategies. You say be optimistic, be pessimistic and be nihilistic, so break that down for us. What does that mean in terms of portfolio positioning?
Cameron Dawson:
It means we kind of have to have all of those personalities in a portfolio. The optimistic really just says that we are in a technological revolution, and we have to appreciate that.
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