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Are we in an AI bubble? I have written a few times on this (most recently here). And one point I made in our 2026 outlook is that it is a pretty odd-looking bubble where emerging markets are outperforming the technology heavy Nasdaq (as they have been for the last 6 months). Another feature of a bubble is that similar stocks blindly move up together. Here, again, I just don’t think we are seeing that. This week has felt like the cliché of the swan gliding serenely over the lake while, below the surface, it is paddling furiously to keep going forward.
As an example, yesterday Meta (which is Facebook, Instagram and Whatsapp) and Microsoft reported. Meta increased its revenues 24% year on year. It is important to note that it is real world AI technology that is driving this actual, real revenue growth. AI is helping Meta get better at targeting ads to its user base. It is also using AI technology to decide what you see next in your Instagram feed. Having people spending more and more time staring at their phones is probably not great for society overall. But it is good for Meta earnings. Meta shares rose over 10% on the day.
Microsoft also reported good revenue growth of 17%. But growth rates look to be slowing and the overall AI strategy is working less well. (Personally, its AI offering, Copilot, looks and feels behind the competition to me). Microsoft shares fell 10% yesterday. Combining these two meant that it looked like the S&P 500 had a pretty uneventful day (falling just -0.1%). But I know a few people who have Microsoft as one of their largest (if not the largest) positions and for them yesterday won’t have felt like that at all.
Nothing I write here is meant as financial advice by the way: Meta and Microsoft might be buys or sells at today’s prices. We don’t invest in single stocks and I have no view on them in either direction. I mention them more to point out the divergence of the prices of these two similar looking technology giants. I have heard it said that increasing flows into passive, index-tracking, ETF vehicles mechanically pushes the US large technology names like Microsoft and Meta higher to the disadvantage of smaller, cheaper companies. I have long thought this is hokum spread by managers of those smaller, cheaper companies to help explain away poor performance (here is Terry Smith of Fundsmith’s annual letter for example). What happened to Microsoft and Meta yesterday is further evidence that price discovery remains alive and well in equity markets.
But if you are looking for a bubble, then there is of course gold. This is the OG bubble that started 6,000 years ago and is still going strong. Our original rationale for buying gold remains in place: every time Trump gets up to speak, the world is reminded that reducing reliance on US assets and US payment mechanisms is probably a good idea. Gold is an easy solution here and central bank buying remains strong. Gold remains a (small) core investment for us.
But recently, things have got much more bubbly. Gold is up 17% for the year as I write and silver, its younger, higher beta sister is up over 40%:
Yesterday, we saw a correction that is continuing this morning: gold fell 8% in under an hour yesterday and silver over 12%. These recent moves have felt like speculative excess rather than anything more fundamental. There are, of course, plenty of legitimate worries about the level of government debt out there. But monetary debasement or a loss of fiscal discipline normally comes hand in hand with much higher inflation. And inflation markets are just not showing any sign of distress or alarm. Here is the market for the average inflation rate in the US over the next 5 years for example. We are back up to 2.5% but very much in line with recent averages:
Gold and silver have recovered a little this morning. We are staying long gold, but today feels like a good day to take some profits on the recent gains.
Of course, zooming out, for longer term investors you have made some money on gold and the bull market continues. Like the swan, you can relax. But if, like me, you get to all do this on a daily basis, then there is plenty going on under the surface to keep you occupied.
Chris Brown, CIO
cbrown@ipscap.com
The value of investments may fall as well as rise and you may not get back all capital invested. Past Performance is not a guide to future performance and should not be relied upon. Nothing in this market commentary should be read as or constitutes investment advice.
