AI: Another party like it's 1999?

Since the introduction of ChatGPT in late 2022, US AI-related stocks have been at the forefront of shareholder value creation, leading to new record highs. According to a recent analysis by J.P. Morgan Asset Management, AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth during this period. Today, more money is spent on new data centres than on office buildings in the US. In other words, it does not need much imagination to find some similarities between the current AI capital expenditure (capex) cycle and the one related to the rise of the internet in the late 1990s. 

In this context, the debate about whether we are to experience another dot-com-like boom-and-bust cycle has heated up again, exacerbated by concerns around a set of deals between leading companies with ‘embedded circularity’. It goes without saying that when one company finances another so that the second can afford to buy more from the first, alarm bells should ring.

Broadly speaking, we observe similarities but also significant differences between the situation today and the one during the dot-com period. As in the late 1990s, the US Federal Reserve (Fed) is easing monetary policy for exogenous reasons. While it was the Asian crisis at the time, tariffs and the US immigration policy are the triggers today. On the other hand, while the capex cycle in the late 1990s was financed through massive issuance of debt and equity, the current capex cycle is largely financed by internally generated cash. As a matter of fact, the leaders in today’s AI arms race include some of the world’s largest, most profitable companies in history, whereas the previous internet-leader cohort involved loss-making, speculative ventures with questionable paths to profitability. It is true that some of today’s AI leaders are richly valued, but so far, valuation levels have not triggered a shift in the behaviour of corporate issuers. 

It is very hard to detect bubbles by looking at valuation levels in isolation. A better chance to detect bubbles, and in particular their tipping points, is offered by observing corporate management and investor behaviour. Today, the secular US de-equitisation trend remains on track, as still more capital is returned to investors via the dividend and share buy-back channels relative to capital raised. US large-cap equities remain a cash-returning mechanism, and we do not envisage the implosion of the AI trade in the immediate future. However, it is clear that there are significant downside risks highly concentrated in the US should AI and its related applications prove to be non-viable avenues to at least recoup today’s enormous capital outlays.

China: benefitting from a massive energy cost advantage

Any discussion of the global AI competition would be incomplete without mentioning China. While the country trails the US in terms of frontier models and advanced chip design, it has proven very capable in quickly following model developments and now leads in open-source large language models (LLMs).

Two key aspects are worth highlighting here:

First, it is true that China continues to be stuck in a balance-sheet recession, with extremely low levels of consumer confidence and extremely high household savings rates, fuelling deflationary pressures. However, Chinese policymakers recognise that among the most effective ways to reflate household balance sheets hurt by the prolonged downturn in the real estate sector would be to engineer a managed and sustainable equity bull market, encouraging Chinese households to shift some of their savings into equities and participate in the wealth creation process over time. 

Second, China is considerably ahead of every other major economy in the process of developing electricity generation capacity, including storage and grid facilities. In fact, the country significantly surpasses the US in terms of additions to power generation capacity and now adds the equivalent of the entire US power grid about every 18 months. North America leads globally with regards to data centre capacity, but this is only half of the equation, as countries able to avoid energy bottlenecks will increasingly be at an advantage going forward. 

Gold: defying gravity amid demand for ‘out-of-system’ assets

Last but not least, another remarkable story has taken hold in markets this year — one written in record-breaking gold prices. In October 2025, gold breached USD 4,000 per ounce, delivering investors its strongest year-to-date performance in over four decades. So what’s driving gold? It’s simple: erosion of trust with regards to the integrity of Western capital markets.

Indeed, unlike in the late 1970s/early 1980s, gold is not rising due to inflation fears. Longer-term inflation expectations remain firmly anchored for now. One of our longest-standing investment convictions, namely that Western policymakers will settle for around 3% rather than 2% inflation levels this decade, on average, remains valid. Faced with the corresponding investment environment – characterised by structurally higher but contained inflation - investors should prefer real assets over nominal claims. More fundamentally, gold is in high demand as a hedge against the weaponisation of Western capital markets for sanction purposes. As long as Western governments undermine foreign investors’ trust in the integrity of their capital markets, gold and other ‘out-of-system’ assets will likely continue to rise. When investors are more concerned about the return of their capital than the return on their capital, the willingness to pay for such assets, even if they are unproductive, can be very high. Currently the yellow metal is off its mid-October highs. Even the fiercest bull trends need to pause at some point to endure, and we suspect that gold might just have entered a multi-month consolidation phase, while the above-mentioned structural drivers remain intact for the time being. 

In conclusion, the convergence of artificial intelligence, China’s strategic economic rebalancing, and the meteoric rise of gold tells a deeper story about the transformation of the global financial order. These are not isolated trends, but interwoven threads in a broader narrative shaped by technological ambition, shifting geopolitical realities, and a growing imperative for resilience and trust.