“The risk of under-investing [in AI] is dramatically greater than the risk of over-investing.”
– Sundar Pichai, Google CEO
February 2025 Market Review
Stocks took a step back in February, with the S&P 500 declining 1%. The tech-heavy NASDAQ was down 4%, and small and mid-cap stocks declined 5%. In contrast, international stocks and U.S. bonds were up 1% and 2%, respectively. That’s a reversal of fortune from the past several years, when bonds and international stocks badly lagged large-cap U.S. stocks.
| Index | Feb. 2025 | Trailing 1 Year |
|---|---|---|
| S&P 500 | -1% | 19% |
| NASDAQ | -4% | 19% |
| International Stocks | 1% | 11% |
| US Small/Mid Cap | -5% | 8% |
| U.S. Bonds | 2% | 6% |
Source: Bloomberg
Big Tech Spends Big On Capex
The launch of ChatGPT in November 2022 set off an arms race in the technology sector. Companies are rushing to adopt artificial intelligence, whether to cut costs, increase productivity, or provide better service to customers.
Artificial intelligence has incredible potential, but leading-edge AI models are also very expensive, requiring huge investments in computing servers, data storage, and electricity. A few industry leaders such as Meta (owner of Facebook, Instagram, and WhatsApp) are spending tens of billions of dollars on proprietary AI datacenters. However, building and maintaining datacenters isn’t a core competency for most firms. Instead, they’re renting computing capacity from cloud services like Amazon’s AWS, Microsoft Azure, and Google Cloud.
To meet surging demand, the four companies mentioned above plan to spend more than $300 billion on capital expenditures in 2025—up more than 100% in just the past two years. That’s more than the annual GDP of Portugal or Finland! These investments disproportionately benefit Nvidia, the leading AI chip designer, but they’re also supporting a whole ecosystem of semiconductor designers and manufacturers, equipment suppliers, and even datacenter landlords and utility companies.
Bearish investors might argue that big tech companies are no longer the capital-light, high-returning businesses they once were. There could also be a risk of overbuilding capacity, leaving companies vulnerable to future write-downs if the AI boom cools (or if the useful life of equipment turns out to be shorter than expected).
Even so, we’re encouraged to see industry leaders willing to spend aggressively to protect their competitive moats and pursue new opportunities. Focusing too much on near-term cash flows at a time of industry disruption is how you end up like Boeing or Intel—once-great innovators that penny-pinched their way into serious problems.
Elon Musk’s DOGE Upends Washington
It’s hard to believe it’s only been six weeks since President Trump returned to the Oval Office. Every other headline seems to be about the administration’s latest executive order or foreign policy pronouncement.
The Department of Government Efficiency, led by Elon Musk, is making especially big waves—firing thousands of government employees and shutting down entire departments. Musk has promised as much as $2 trillion in annual savings, but DOGE won’t get there through layoffs. Compensation for the entire federal workforce is under $300 billion, or only 4.3% of the government’s annual budget.
The real money is in Social Security, Medicare, Medicaid, defense, and net interest expense, which combined account for about 72% of federal outlays. Most of this spending had traditionally been seen as politically off-limits, but sentiment in Washington may be shifting. As investors, we’re paying close attention to potential impacts on healthcare and defense companies.
Beware Speculation
Lastly, we sense heightened speculative energy in the markets, reminiscent of the 2020-21 period. Markets have always been prone to booms and busts. When returns have been strong for a few years, some investors can’t help but get carried away. We see it in the attention paid to cryptocurrencies, meme stocks, short-term options, and companies with questionable business models.
One beneficiary has been Robinhood, the preferred brokerage app of day traders and speculators. Robinhood’s trading revenue over the past four years shows a clear boom-bust pattern, soaring 110% in 2024. A similar jump in 2021 didn’t end well, either for Robinhood or the broader market.
At Trajan Wealth, we believe in investing for the long term. That means keeping a cool head, avoiding the hot trends, and focusing on businesses and assets that can compound their intrinsic value for many years to come.
Conclusion
This is a time of rapid change and overwhelming uncertainty in the economy, government, and financial markets. You want a team of professionals working full-time to protect and grow your money. Click the button below to get started!
