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Please see below, an article from EPIC Investment Partners which analyses the latest inflation figures in the UK. Received today – 24/10/2025

September’s figures show that UK inflation remains stubbornly high at 3.8%, nearly double the Bank of England’s target. Not only does the prospect of further interest rate cuts display wilful disregard of the MPC’s 2% mandate, this inflation number is also understated.

The Consumer Price Index (‘CPI’) is used by governments to set inflation targets and adjust other measures such as state pensions and benefits. It also impacts interest rates, wages and other payments, and is intended to show how inflation affects household budgets. The CPI measures inflation by tracking the average change over time in the prices of a basket of goods and services purchased by a typical household. The Office of National Statistics collects prices for about 700 different items like food, energy, and clothing, to create a “shopping basket”. They then track the price changes of this basket over time to calculate inflation. However, this is a flawed measure of price rises as it excludes housing costs, unlike the more complete Retail Price Index (‘RPI’).

CPI is generally lower than RPI, an older measure that includes owner-occupier housing costs like mortgage interest payments and council tax. But does either measure provide a true reflection of the cost of living? My friend in the US has just sent his Microsoft Excel subscription renewal statement – an increase from $69.99 to $99.99. Those of us unfortunate enough to occasionally grace a supermarket, or fortunate enough to occasionally visit restaurants, can bear witness to exponential price increases that appear divorced from official CPI numbers. And, of course, there is taxation, which apart from excise duties and sales taxes that directly affect prices paid, are excluded from both indices. My American correspondent also points out that their CPI used for index linking excludes both food and energy!

Even compound inflation of 3.8% halves the purchasing power of a currency in 18 years, and a Pound will have lost 75% of its current purchasing power before my newly born grandson reaches the age of thirty-five. Now let’s look at the real erosion of what our currency will buy. Prices including owner occupiers’ housing costs, (CPIH) rose by 4.1% in the 12 months to August 2025, and of course this might not accurately reflect the inflation rate for individuals with different spending habits, such as a retired person with higher healthcare costs, or a family with young children. While necessary for a consistent measure, methods like “substitution bias” (which assumes consumers switch to cheaper alternatives when prices rise) can also lead to an underestimation of the impact of rising prices on specific goods.

As we can see, inflation is a complex topic, and different individuals may feel that their personal experience of rising prices is higher than the official CPI figure, particularly in specific sectors like housing or energy. However, these marginal differences do not seem to explain our individual perceptions of changes in the cost of living. Some basic arithmetic can help: if we focus on the underlying index of prices as opposed to individual annual increases, we might find an answer.

Following Covid, the annual CPI figure rose to high single digit percentages from which it has now fallen back to below 4%. However, this 4% figure is in addition to previous price rises. I will use a basic set of assumptions to make the point. A £100 product price, inflated by 4% rises to £104. However, if preceded by a several years of high levels of compounding inflation, 4% is multiplied by a much larger number. If we use the CPI to measure inflation, just over the past five years, prices as measured by the CPI are now over 28% higher than at the beginning of 2021. 4% inflation this year takes the price index from 128 to nearly 135, and so a further 7%, measured in 2021 prices. This figure sounds closer to what many seem to be experiencing, and by unhappy coincidence reflects some commentators’ estimates of real underlying inflation both here and in America.

Whatever the arithmetic applied, strong signals being given by the commodities markets point towards fears of accelerating FIAT currency debasement. A return to 1970s inflation levels would see the Dollar lose a further 75% of its purchasing power in a decade – this in addition to the 95% erosion of the currency’s value since 1913.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Alex Kitteringham

24^th October 2025

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 21/10/2025.  

U.S. and China trade negotiations continue

Fresh trade talks between Presidents Trump and Xi were announced last week – how have the markets responded to the news?

Key highlights

• A pause for reflection: Investors have shifted from chasing the market rally to assessing the risks.
• Credit “cockroaches”: Isolated loan defaults, such as those at U.S. firms First Brands and Tricolor Holdings, are worth monitoring, but solid bank earnings provide reassurance.
• The gold rush: Gold prices rallied amid ‘safe haven’ demand and an ongoing ‘debasement trade’

From exuberance to evaluation

After months of relentless gains, global markets took a breather last week.

Investors have shifted from exuberance to evaluation, reassessing whether stretched valuations can hold amid emerging signs of credit stress, renewed trade tensions between the U.S. and China, and concerns over a potential artificial intelligence (AI) bubble.

Stocks took a little breather as gold marches on

Source: Bloomberg

While caution has crept back in, the broader picture remains constructive, with solid corporate earnings, resilient consumer sentiments, and more Federal Reserve (the Fed) easing on the way.

The change in market tone began with renewed worries about credit quality in U.S. banks. The defaults at First Brands and Tricolor Holdings raised concerns about lax credit standards, potential deterioration in credit quality, and loan loss provisions at financial institutions.

To make things worse, two regional U.S. banks, Zions Bancorp and Western Alliance Bancorp, said they were victims of fraud in relation to loans to funds that invest in distressed commercial mortgages. This revived memories of the regional banking turmoil in 2023, and understandably investors have become nervous. JPMorgan Chase CEO, Jamie Dimon, made a goosebump-inducing analogy, which added to the unease: “When you see one cockroach, there are probably more”.

So far, the credit events feel like unconnected incidents. But when Jamie Dimon talks about cockroaches, it amplifies a long-lingering nervousness about the vast growth of private credit and the need to refinance real estate loans. The fact that the private market is so opaque makes it hard to know how strong credit quality is.

Encouragingly, the early earnings results from U.S. regional banks offered some reassurance. Reports from Truist Financial, Regions Financial, and Fifth Third Bancorp showed lower-than-expected provisions for credit losses. Several lenders also highlighted resilient consumer spending and stable deposit bases. Many regional lenders have also improved capital buffers since 2023.

Beyond the regional lenders, major U.S. banks delivered a strong earnings season, reinforcing the view that the financial system and the U.S. economy remain resilient. The biggest U.S. banks reported healthy net interest income, robust trading revenues and continued loan growth, underpinned by solid consumer spending. There are reasons to believe that the recent credit jitters are idiosyncratic rather than systemic.

Still, recent developments are a reminder that the aftershocks of higher interest rates can reverberate through smaller banks, weaker companies and credit markets. For the Fed, it helps further the argument for easing policy rather than keeping financial conditions too tight for too long.

Trade tensions are meant to escalate, then de-escalate

Renewed tariff exchanges between the U.S. and China added another layer of complexity to investors.

President Donald Trump has threatened additional 100% tariffs on Chinese goods after China tightened export controls on rare-earth materials. Yet, in typical fashion, President Trump struck a softer tone in a Fox Business interview, saying that “tariffs are not sustainable” and expressing confidence that “we’ll be fine with China”.

The markets’ interpretation is that by setting the next tariff increase deadline for 1 November, President Trump is clearly leaving room and time for negotiation. There’s still a chance, and expectation, that he’ll meet President Xi Jinping in South Korea within weeks, which leaves optimism that both sides are ready to de-escalate.

The AI story remains powerful despite talks of a bubble

The AI-driven rally that propelled stocks to record highs has paused for breath. Talk of an AI bubble is front and centre. It’s actually good to see this scepticism when optimism runs high.

Concerns over valuations, concentration and the circular nature of some AI deals have triggered some profit-taking, especially after months of extraordinary gains. Yet, the fundamentals of the AI story remain intact. Earnings from ASML and TSMC reaffirmed that demand for AI-related infrastructure – from semiconductors to equipment makers – remains robust. There’s still clear visibility of and longevity for the tangible capital investments going into AI.

That said, there are pockets and signs of froth (a lesser and milder version of a bubble) – for instance, huge intraday stock price surges from large established companies following AI deal announcements and investors chasing momentum stocks.

AI start-up valuations are also sky high despite many being loss-making at this stage. AI will no doubt be a transformative technology, but there are lingering concerns over whether all the money will generate adequate returns.

With AI capital expenditure (capex) ramping up, and the Fed cutting interest rates again, there are parallels with the late 1990s tech boom. We think the AI-driven rally could well go further and we want to have at least benchmark exposure to that. Stretched valuations keep us from being more bullish on this.

All that glitters… is gold

In this climate of cautious sentiment, gold has been the standout performer. The precious metal has surged to US$4,356 per ounce, buoyed by macro uncertainty, institutional distrust, central bank buying and lower U.S. interest rates.

Gold prices made new highs despite the sharp fall in economic policy uncertainty

Source: Bloomberg

Buying gold is described as the ‘debasement trade’, a hedge not only against inflation but also against ballooning fiscal deficits and long-term currency value erosion. Meanwhile, government bonds have found renewed demand as investors price in further Fed easing and weaker growth.

Taken together, the week’s development marked a shift from complacency and euphoria to caution. Valuations are stretched, economic uncertainty persists, and trade tensions remain.

It’s understandable that investors are taking a more measured stance after such a strong run since April, but the broader backdrop is okay. Corporate earnings are still solid, consumers are resilient, and the Fed is likely to continue easing. Markets are doing what they should, which is consolidating after exuberance, digesting new information and recalibrating expectations.

The AI investment cycle continues to provide a structural anchor, while gold and government bonds are fulfilling their roles as hedges in times of uncertainty.

Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.

Charlotte Clarke

22/10/2025

 

Please see the below article from EPIC Investment Partners detailing their discussions on US Credit Woes. Received this morning 21/10/2025.

Recent instances of credit risk within the US regional banking sector have triggered a decisive flight-to-safety into US Treasury securities. This market reaction intensified last week, sparked by alarming disclosures from several regional lenders, including Zions Bancorp and Western Alliance Bancorp, concerning loan-related write-downs and exposure to alleged fraud. These issues were not isolated; they revived broader market anxieties stemming from the 2023 regional banking turmoil. The events also coincided with high-profile corporate bankruptcies in the private credit market, particularly from lenders like Tricolor, suggesting that a longer period of high interest rates was beginning to expose weakness and potential “hidden” credit quality issues across the financial system.

As fears of banking instability and a potential economic slowdown spread, investors rapidly rotated their capital out of risk-sensitive assets, such as equities and bank stocks, and into perceived safe havens. The US Treasury market, as the global benchmark for risk-free assets, was the primary beneficiary. The surge in demand for Treasuries saw the benchmark 10-year Treasury yield rally through the 4% level, and shorter-term yields witnessed even larger declines.

This rally in sovereign debt was reinforced by the simultaneous adjustment of market expectations regarding monetary policy. The emergence of credit risk, coupled with a protracted US government shutdown and lingering trade tensions, have increased the probability of a deteriorating US economic outlook. Market makers have therefore rapidly increased their bets that the Fed will be forced to accelerate its schedule of interest rate cuts in 2025 to prevent credit tightening from causing a deeper recession. The Treasury rally has been a clear sign that market participants are prioritising liquidity and safety over return, signalling heightened stress in the financial system.

Please continue to check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare

21/10/2025

Please see below, an article from Tatton Investment Management, analysing the key factors currently affecting global investment markets. Received this morning – 20/10/2025

Bounce and brace

Global risk assets finally ended with a bounce last week, with portfolios still closer to where they were at the beginning of October than the highs touched before Trump’s 100% tariff threat on China. The pull-back has been healthy, considering how frothy some areas looked.

Trump’s tariff threat came after China’s export restrictions on rare earth minerals. Trump and President Xi will meet face-to-face at the APEC summit starting on October 31st, and we suspect they are getting their barbs in ahead of more constructive negotiations. China goes into the summit in mixed shape, after a pickup in its imports and consumer demand (benefitting European luxury goods). But exports are flat when adjusted for seasonal patterns, while GDP has just been reported as dropping to 4.8% in Q3 -the weakest in a year – and so Beijing still has much to lose. Hopefully, that incentive keeps things stable and civil.

Government bond yields moved down, particularly for the UK. We’ve long argued Britain isn’t as bad as it looks; it’s just odd others are agreeing right before tax rises come in. Corporate credit looks less healthy, amid a spat between JPMorgan’s Jamie Dimon and private credit providers over who has the worse lending standards. Credit in the spotlight means problem areas will be revealed (as with some regional US banks this week) and lending could tighten. It will be difficult for credit spreads and distressed debt to do well in this environment.

Thankfully, the Federal Reserve looks nailed on to cut rates again this week in response, which will help smaller companies (some of the week’s better performers) in particular. The other saving grace was strong quarterly bank earnings – though not enough to support bank share prices. You can’t see credit stress in the reports and earnings everywhere have been resilient.

Without those earnings, markets could have experienced more lasting downdraft. Risk appetite is waning (AI and crypto concerns are covered below) and liquidity is tightening. Lingering anxieties could mean more volatility ahead. But underlying earnings mean investors would do well to stay calm through the turbulence.

AI bubble trouble

According to Bank of America, 54% of fund managers think the AI sector is in bubble territory. AI optimism (and related cloud technologies) has been one of the main market drivers for years, and big US tech companies have poured billions into development. But most businesses struggle to say how generative AI has improved operations. That disconnect fuels bubble talk, especially after a six-month-long global stock rally that many worry is overheating. Just as the dotcom bubble burst in 2000, there are an alarming number of tech companies without any profits. Bubble trouble went into overdrive last month after an OpenAI-Nvidia deal which looks like circular ‘vendor financing’.

We should remember, though, that the ‘Magnificent Seven’ tech stocks that have benefitted the most from the AI theme remain extremely profitable. Their price-to-earnings valuations are much lower than the dotcom-era leaders, and some (Apple and Amazon) aren’t that highly valued at all. You could argue that big tech is overpaying for AI development but many of those companies were accused of underinvestment in the past. Capex is still mostly coming from free cashflow too, rather than leverage.

Bubble talk should therefore be nuanced. It is undeniable that some US tech stocks have stretched valuations, but they’re more likely small and midcap companies. There are worsening profit margins just below the Mag7 (like Oracle and CoreWeave) but those companies are betting on high future computing demand.

Interestingly, the most profitable AI companies benefit from scarcity, but that scarcity pushes up prices and hinders broad AI usage. That’s the opposite of dotcom: the internet was free, which is why companies struggled to make money. AI’s future profits require broad adoption – but its current profits hinder adoption. The biggest names are unlikely to bubble over, but there are concerns below the surface.

Gold benefits from debasement

US instability has pushed people out of the dollar this year, and into old favourites (gold) and new disruptors (cryptocurrencies). Investors call that “the great debasement trade”, but it’s becoming uneven.

Cryptocurrencies sold off sharply after Trump’s 100% China tariff threat a week ago. Bitcoin lost 16% in the aftermath, Dogecoin sank 50% and certain so-called ‘stablecoins’ (which aren’t legally stablecoins, as they’re not backed by risk-free instruments) lost their 1-for-1 dollar pegs. $19bn of leveraged positions were liquidated across futures markets – including a suspiciously large sell order (in profit), that was opened just minutes before Trump’s announcement. Volatility forced leveraged buyers to close crypto positions to cover their margin calls, and exchanges deployed $188mn from an insurance fund to cover market gaps.

Gold, on the other hand, kept soaring ahead. Its years-long rally has amped up recently, going from $3,200 an ounce at the start of August to over $4,200 now. People lump gold and cryptos together in the debasement narrative – but their drivers are different. Central bank purchases have created a momentum trade dynamic for physical gold, following Russia’s SWIFT exit and a desire (mainly from emerging markets) to de-dollarize. Gold prices rallied again despite a stronger dollar, which normally pulls down commodities through pricing effects.

The gold-crypto disparity tells us gold is seen as a currency diversification, while cryptos are risk assets. Indeed, a crypto rally is often taken as a sign of risk appetite. That might sound strange, considering that a gold rally is usually interpreted as a risk-off indicator. The debasement trade reconciles that difference, but the recent coming apart cements gold’s status as the main dollar alternative.

That’s also why we don’t think gold is a viable long-term investment (which long-term returns back up). There’s nothing to stop it rallying further, but it’s a currency diversification play more than a source of growth.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Marcus Blenkinsop

20^th October 2025

Please see below the daily update article from EPIC Investment Partners, received this morning – 17/10/2025:

EPIC Fixed Income philosophy: breaking free from debt-driven returns

The EPIC Fixed Income Strategy is designed to provide investors diversification beyond the confines of a traditional benchmark. Cognisant of the limitations of fixed income indices, which leads to larger exposure to highly indebted nations, the strategy prefers a rigorous, global search for mispriced sovereign and quasi-sovereign debt issued by wealthy nations, as defined by our Net Foreign Analysis (NFA). Our active approach is built on discipline and deep fundamental insight, creating value across the portfolio.

Active management in practice: the Pemex rally

This active approach is exemplified by our position in Petróleos Mexicanos (Pemex) bonds, a primary contributor to our outperformance. Despite persistent operational and financial challenges, Mexican state-owned Pemex has been one of the major outperformers across the strategy.

For instance, the 7.69% bond maturing in 2050 has seen a remarkable rally of approximately 28% year-to-date*. The true catalysts were the explicit government backing and undervaluation of the bond. The strategic selection of undervalued bonds enables us to bypass the limitations inherent in an index.

Outperformance versus the JP Morgan EMBI Global Index

* Source Bloomberg LP and EPIC Calculations. As at end September 2025.

The Sheinbaum administration – a new chapter for PEMEX

The election of President Claudia Sheinbaum signalled a decisive shift in approach, committing to addressing the company’s deep-seated financial issues. This renewed government support is the single most important factor for bond investors. The explicit commitment underscores the quasi-sovereign character of Pemex’s debt, effectively positioning the Mexican government’s creditworthiness as the ultimate backstop.

The administration’s proactive steps, which underscore their commitment to stabilise Pemex and other-state owned companies, include:

• A comprehensive 10-year plan (2025–2035): This strategic roadmap aims to transform Pemex into a more efficient and sustainable entity through debt reduction, production stabilisation, and the revival of key operations.
• Fiscal relief: A new tax reform is designed to significantly reduce Pemex’s historically high tax burden, freeing up capital for productive investment.
• Direct financial lifelines: The government has provided, and committed to providing, substantial financial support, including a large investment fund to finance projects and ensure timely payments to suppliers.

The market’s confidence has been formally validated by credit rating agencies. In a matter of weeks:

• S&P Global Ratings affirmed its BBB rating in September, a benchmark that has remained in place since March 2020. This consistency is key: unlike other agencies whose recent upgrades were a direct reaction to immediate government action, S&P’s investment-grade rating is the clearest reflection of its belief that the Mexican sovereign link is the fundamental driver of value.
• Moody’s upgraded Pemex by two notches (from B3 to B1) in September, citing a “very high” government support assumption for the company.
• Fitch Ratings followed suit with a further upgrade to BB+ in October, specifically noting that the successful execution of a large government-funded tender offer indicated an “increased linkage between Pemex and the sovereign.”

This wave of upgrades confirms that the government’s financial strategy, centred on improving stability and sustainability, has dramatically improved the credit profile of the Pemex bonds.

The value of vision

The success of the Pemex position validates our core philosophy. By focusing on fundamental analysis and identifying the true drivers of value, such as explicit government support, we capitalise on opportunities consistently overlooked by passive strategies.

Our unconstrained approach allows us to look past headline risk and conventional metrics, enabling us to target value across three distinct areas:

• Political and structural catalysts – identifying sovereign actions that fundamentally alter credit risk.
• Mispriced technical dynamics – exploiting situations where index constraints force others to sell.
• Deep fundamental dislocation – uncovering value where a market’s negative perception ignores strong underlying economic realities.

Our unconstrained process actively creates value for our clients. We move decisively beyond the limitations inherent in index structures, applying deep insight and rigorous selection to generate performance. Our focus remains squarely on value, discipline, and delivering robust returns for your portfolio.

Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.

Andrew Lloyd  

17/10/2025

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 14/10/2025.  

What’s behind the latest U.S. stock sell-off?

Key highlights

• Stocks rally on Takaichi win: Japanese stocks got off to a flying start after Sanae Takaichi was announced leader of the Liberal Democratic Party.
• Why are long-term bond yields rising? Inflationary pressures returning, a lack of fiscal restraint, and rising gold prices have seen global long-term bond yields rise.
• The risk of a circular AI investment model: The adoption of a ‘vendor financing’ model could see companies misjudge the underlying demand that the system’s built on, potentially leading to a depreciation in asset value.

Stocks buffeted by political waves

Stocks fell sharply on Friday, driven by concerns of a renewed U.S.-China trade war. The initial action came last Thursday, with China raising export controls on rare earths (metallic elements found throughout the Earth’s crust), which is assumed to be in retaliation against U.S. technology curbs. China also imposed special port fees on U.S. vessels docking at Chinese ports, and an anti-trust investigation into U.S. semiconductor manufacturer Qualcomm.

President Donald Trump announced he would respond with a new 100% tariff on Chinese imports, which was to be imposed over and above all pre-existing tariffs. These latest measures prompted the biggest U.S. equity sell-off since April. It was led by technology companies, which risk being caught in the political crossfire of the dispute and face their own investment controversies, as we discuss later.

Sunday saw some remarks by President Trump and Vice President JD Vance that are being treated as evidence that the TACO (Trump Always Chickens Out) heuristic remains in play. The implication is that a violent market reaction makes the administration reverse or delay its measures. But did the White House promise anything like that? Not really.

The president just emphasised that he thinks it won’t be a problem, and that the U.S. and China aren’t trying to impose pain on each other. At the time of writing, the dispute has yet to be resolved.

Bond yields and gold have risen as governments become more wasteful

Source: LSEG Datastream

Japanese stocks got off to a flying start last week following the surprise result of the Liberal Democratic Party (LDP)’s leadership election.

Sanae Takaichi emerged as the winner, causing ructions in financial markets due to her previous statements on the best course for monetary and fiscal policy. Takaichi is considered a dove on both fronts – advocating for tax cuts and opposing interest rate increases.

Government intervention into monetary policy has been a bit of a theme since U.S. President Donald Trump’s return to power. He’s locked horns with his previous appointment to the Federal Reserve (the Fed), Chair Jay Powell, and more recently with Fed Governor Lisa Cook. The Japanese government has also attempted to steer policy before, but previous efforts were rebuffed by the Bank of Japan (BoJ) board.

The reaction was a fall in the yen and consequent rise in equities. The bond market’s response was more nuanced. Shorter-dated bonds saw gains (yields fell) as it seems less likely that interest rates will go up in the short term due to Takaichi’s perceived political pressure. However, longer-dated bonds weakened (yields rose) because a more accommodating fiscal attitude means higher inflation and more bond issuance.

These reactions did partially reverse toward the end of the week as the early challenges of Takaichi’s prospective premiership emerged. She and her government need to gain parliamentary support, but the LDP-led coalition doesn’t have a majority in either of the two chambers of the Japanese National Diet.

To compound these challenges, the junior coalition party, Komeito, threatened to leave the coalition (which has broadly endured since 1999) due to differences with Takaichi. This prompted anxieties over whether a budget could be passed and what it would contain. However, it still seems likely that Takaichi will be able to form a government, and pass a budget, with opposition more likely to be directed at looser fiscal policy, rather than tighter.

The direction of monetary policy is harder to call. For the time being, neither the BoJ nor the government seem inclined to raise interest rates. They are concerned about weak wage growth due to a lack of profitability when the spring Shunto wage negotiations begin.

Why are long-term bond yields rising?

The rise in long-dated bond yields is part of a trend we’ve seen in other countries. The UK has suffered from them, as has the U.S., and the change is particularly pronounced in Japan (because rates are rising from such a low level).

It’s not a coincidence that long-term bond yields have risen, as inflationary pressures return from deglobalisation and a lack of fiscal restraint at the same time as gold prices have risen. Notably, each phase of bond market weakness (first in the UK, then the U.S., and now Japan) has been accompanied by an increase in gold prices.

The pace of gains naturally raises the question of whether gold has entered a bubble. With no valuation metric or yield, it’s impossible to definitively rule it out. However, the news flow remains supportive of gold, with little prospect of that changing.

What could change it? One possibility is a bond market riot forcing a return to fiscal restraint. Another is the natural cycle of any bull market – peaking when there are no prospective buyers left. For now, however, it seems there are still plenty of potential new buyers for gold.

Why AI’s circular investment environment is risky

Concerns of a bubble have also infected the artificial intelligence (AI) ecosystem.

For many years, the biggest players in AI have been the hyper-scalers, which generate enormous cashflows and have been well placed to funnel some of that funding back into building out cloud capacity. But over time, other players have also risen in prominence and have contributed to financing increasing investment into the IT and AI space.

However, over the last couple of years, the means of funding new investment has switched from customers paying suppliers, to more novel mechanisms of circular investments. These sometimes-complex transactions involve technology suppliers – primarily semiconductor manufacturers and cloud providers – taking equity stakes, providing capacity guarantees, or offering debt to secure long-term procurement commitments from AI developers and infrastructure tenants. These tenants can be individual customers or organisations within a larger, shared infrastructure.

This ‘vendor financing’ model helps share the risk of the colossal capital expenditure required for some AI infrastructure suppliers. However, it can also flatter the reported revenue and subsequent market valuations of the suppliers – establishing a potent, self-reinforcing cycle.

NVIDIA has been leading in this space by actively guaranteeing customer demand through direct equity investments and capacity backstop agreements. The company has enjoyed enormous cashflows in recent years and is now using them to create its own demand for the future. NVIDIA reached an agreement for CoreWeave to buy its chips, committing to buy any excess cloud capacity that CoreWeave has available.

A commitment from such a financially robust counterparty serves as security against CoreWeave’s own borrowing. NVIDIA also committed to invest up to $100 billion in OpenAI, on the condition that NVIDIA systems power 10 gigawatts (GW) of capacity.

There are reasons to be cautious about these arrangements. Firstly, the fact that so much investment is taking place raises fears of previous over-investment cycles. Most companies investing $5 billion today will be suffering a $1 billion depreciation charge next year. If demand doesn’t meet expectations, there could be a further write-down charge.

The very clear and present demand for these relatively short-lived assets has underpinned the investment case to date. But as the circular commitments become more prevalent, there’s a risk that the companies fundamentally misjudge the underlying demand on which the system is built.

That risk seems modest right now, but it’s one that needs to be monitored closely.

Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.

Charlotte Clarke

15/10/2025