Economy Is Booming - Why the Stock Market Will Continue To Rally

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The Bureau of Economic Analysis (BEA) reported GDP grew at an annual rate of 2% (net of inflation). The US economy remains resilient in the face of compounding shocks.

Consumer spending is still positive despite concerns about demand destruction due to higher gas prices. Personal savings rate fell to the lowest since 2022 — a good thing, since people only start saving when unemployed.

Business investments are growing but there’s a big split between AI spending and non-AI. AI investment remains the only driving force of growth. Analysts see the decline in non-AI spending as a sign of underlying malaise (“AI is the only thing holding up the economy!”) but we don’t see it that way. We are in the adoption phase of the most transformative, most productive tech in modern history; it makes sense to divert all resources to toward that effort.

Note that there’s a transition from data center construction (i.e. physical structures) to equipment and software (the stuff inside the completed structure). This bodes well for stocks that make critical components such as power management, cooling, and networking (e.g. VRT, ETN, ANET, etc).

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