The AI Mega Deals Are Here & Stocks Will Keep Going Higher

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To investors,

The stock market has been on a tear this year. The S&P 500 is up more than 16% and the Nasdaq has surged 23% higher year-to-date. This outperformance is largely attributed to the investment boom related to artificial intelligence.

But one question lingers in the mind of every investor…are we in an AI bubble?

The answer to that question will determine the portfolio returns of tens of millions of people. Before we discuss whether we are in a bubble or not, it is important to understand what is actually happening in the economy.

The best description I have seen comes from Adam Kobeissi when he wrote about the AI construction boom:

“The Dodge Momentum Index surged +60% YoY in September, to the highest on record. This index serves as a leading indicator of non-residential construction, tracking projects that typically move from planning to groundbreaking within 9–12 months.

The jump was led by a +75% YoY spike in institutional projects such as healthcare and public buildings, and a +53% jump in commercial activity driven by data centers and retail. The index also rose +3% MoM in September, extending a powerful uptrend after +5% in August and +21% in July.

In other words, the surge in AI-driven data center projects is set to translate into a powerful construction boom across the US in 2026. AI’s impact on the real economy is accelerating.”

Goldman Sachs and Mike Zaccardi explain a big reason for this explosion is that mega-cap companies continue to exceed expectations on their AI CAPEX spending.

So whether we are in a bubble or not, we know that companies are sinking insane amounts of money into building data centers and power generation. In fact, the investment in power generation is very important to pay attention to because the market is realizing that power, not chips, are the limiting factor for hyperscalers.

Don’t take my word for it though. Here is Microsoft CEO Satya Nadella explaining the lack of power supply on a recent episode of the BG2 podcast:

It is crazy to hear the CEO of a multi-trillion dollar company saying he has the compute capacity, but he doesn’t have the data centers and power supply to plug them into. This completely changes the way that investors will view the AI market.

Strategist Shay Boloor explains:

“The real constraint is not compute but power & data center space. This is exactly why access to powered data centers has become the new leverage point.

If compute is easy to buy but power is hard to get, the leverage moves to whoever controls energy & infrastructure. Every new data center that $MSFT, $GOOGL, $AMZN, $META & $ORCL are trying to build needs hundreds of megawatts of steady power. Getting that energy online now takes years which means the players who locked in power early & built vertically across the stack are the ones with real control.

Hyperscaler growth is no longer defined by how many GPUs they can buy but by how quickly they can energize new capacity.”

Now Shay wrote this analysis before this morning’s mega announcements of energy deals with the hyperscalers. VanEck’s Matt Sigel points out “$15 billion in Bitcoin mining deals this morning. Sector market cap: ~$65 billion. Imagine if oil majors announced deals worth 20% of their market cap in one day. That’s how fast AI is rewiring the global energy stack.”

The two deals this morning come from IREN and CIFR, two bitcoin mining businesses that are making the transition into AI data center providers. IREN announced a $9.7 billion AI cloud contract with Microsoft and CIFR announced a $5.5 billion deal with Amazon’s AWS.

These mega deals prove the point that Satya Nadella was making. There is a significant supply-demand imbalance for data centers and energy production. You don’t have to be Albert Einstein to realize that the companies who solve this problem will create significant value for their shareholders.

It is hard to have a bubble in AI when every person you talk to is yelling from the rooftop that demand is drastically outpacing supply. Bubbles only pop when a market gets saturated with supply and there are no buyers left. We are very, very far away from that moment. It doesn’t mean we won’t get there at some point in the future, but it does mean you can stop listening to the market crash predictors right now.

Even the President of the United States believes “everybody wants AI because it’s the new internet. It’s the new everything. It’s one of the biggest things anyone’s ever seen. So everyone wants it. Yeah. I mean, the only problem is if you don’t get it.”

It is hard to be bearish on a sector when the most powerful man in the world is actively creating policies that act as a tailwind for the industry.

With that said, if I had to look at one aspect where risk can start to metastasize, it would be the use of leverage to fund CAPEX investments. We know that companies are reaching the limit of how much cash flow can be used for CAPEX investments. Mike Zaccardi shares a great chart to highlight where we are currently:

Rohan Paul highlights the recent Bank of America research showing borrowing to fund AI data center spending has accelerated at a dizzying pace in September and October.

Regardless of whether you are a bull or a bear on the AI bubble debate, no one is going to solve it. Only the market can do that. The market is the referee. And right now the market is telling us that AI companies are still undervalued compared to the value they will create by solving one of society’s hardest problems.

Have a great start to your week. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

The Truth About Why Bitcoin Isn’t Exploding (Yet)

Jordi Visser is a macro investor with over 30 years of Wall Street experience. He also writes a Substack called “VisserLabs” and puts out investing YouTube videos.

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