Above the Noise: AI, earnings, and permabears

The current market environment is unlike past technology bubbles because real AI demand, resilient earnings and broadening participation are outweighing bearish concerns.

• Unlike the railroad and internet booms, demand for AI infrastructure is already exceeding supply, with companies competing for chips, memory, data centers, energy and network capacity.
• The pattern may resemble 2023 more than a historic crisis: inflation expectations had already peaked, S&P 500 operating earnings were strong, and the index gained 26.26% that year despite war, high oil prices and rising bond yields.
• US corporate earnings increased roughly 25% year over year through June 30, 2026, while nonfarm payroll growth was essentially flat in July, suggesting productivity gains may be emerging across sectors and global markets.
• Market concerns about excessive valuations and narrow leadership have weakened: earnings growth outpaced the market advance, valuations moderated, and the S&P 500 Equal Weight Index gained 16.31% year to date versus 13.91% for the S&P 500 as of August 17.
• Oil prices have been relatively flat since early April, inflation expectations remain anchored and economic indicators remain resilient; the author also views Citadel’s financing of leveraged hedge fund Situational Awareness as evidence that capital can absorb isolated stress rather than a systemic market-top signal.
• Invesco Fixed Income remains neutral on US rates because markets price almost two Fed hikes over the next year while the team expects rates to stay on hold, although geopolitical uncertainty argues against a directional duration position.

Takeaway: Investors should continue testing bearish arguments without assuming they signal an imminent top, while recognizing that AI-related infrastructure demand, earnings growth and broader market participation support the rally; uncertainty around rates, geopolitics and leverage still warrants caution.