Please see the below article from Brooks Macdonald detailing their discussions on the AI Arms Race. Received this morning 04/11/2025.
What has happened?
Markets kicked off November with familiar patterns: the S&P 500 edged up +0.17%, but the Magnificent 7 gained +1.18% while the rest of the index (S&P 500 ex-Mag-7) slipped -0.30%. Small caps and equal-weighted shares echoed the caution, with the Russell 2000 and equal-weighted S&P 500 down -0.33% and -0.30% respectively. Investors wrestled with hawkish Fed signals, and a government shutdown now tied for the longest in history and set to claim the record at midnight tonight. Amongst mega-caps, Amazon stole the spotlight, jumping +4.00% after striking a seven-year deal with OpenAI. The ChatGPT creator will pay Amazon Web Services for Nvidia chips and data-centre access in a deal valued at up to $38 billion.
Fed speakers turn up the hawkishness
Treasury yields climbed as several Fed officials sounded cautious. Chicago Fed President Goolsbee (a 2025 voter) said he’s ‘not decided’ on December and is ‘nervous’ about inflation trending the wrong way after four-and-a-half years above target. San Francisco’s Daly urged an ‘open mind’ for the next meeting. Governor Cook noted rising employment risks but stopped short of backing December easing. The hawkish chorus, building on Chair Powell’s comments last week, pushed the 2-year yield +3.1 bps to 3.61% and the 10-year +3.3 bps to 4.11%.
What does Brooks Macdonald think?
The AI arms race is accelerating. OpenAI’s Amazon deal pushes its recent pledges toward $1.5 trillion when combined with prior Nvidia and AMD deals. At the same time, Alphabet joined the funding frenzy by announcing ~$22 billion in new to fuel AI buildout, mirroring Meta’s more aggressive borrowing strategy. The AI investment boom continues to split the market: mega-caps with direct AI exposure race ahead, while the broader economy faces cross-currents from sticky inflation, Fed restraint, and fiscal gridlock. We remain vigilant as tides can turn quickly.
Bloomberg as at 04/11/2025. TR denotes Net Total Return.
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Alex Clare
04/11/2025