Markets – October 2025

Gartner, a leading American research and advisory company, estimates that global AI spending will reach US$1.5 trillion in 2025, and exceed US$2 trillion by 2026. It will be driven by the rollout of hyperscale infrastructure, enterprise adoption, and consumer device integration. That’s a lot of dollars!

Of concern to many investors is that currently no one knows what level of return will be generated from such investment. Will there be sufficient returns to reward company shareholders? Will there be a return on investment to cover the cost of the rollout capital? And if not, will companies investing in this space have high levels of asset write-downs coming through over the next decade?

We won’t know the answers for years to come, yet global investors seem convinced the rivers of gold are there and continue to reward these companies with increasingly higher valuations. 

The comparison to the dot-com boom in the late 1990s is reasonable. But back then the majority of the hot stocks were newly created companies (like pets.com) that had no business and no sales.

Today’s AI giants are hugely profitable, generate high levels of cashflow, have incredible return on equity and have strong relationships and support from governments.

But there are emerging concerns.

Recently a brand-new US company called Thinking Machines Lab was able to raise seed capital of US$2 billion dollars and obtain a valuation of over US$12 billion. What stood out with this transaction was that a brand-new company with no products and no revenue could reach such a high valuation just from being associated to the AI thematic.

As investors, it’s important to turn down the daily noise of the media and markets and always make sure we return to fundamentals. High valuations in the tech/AI sector aside, there are encouraging signs that global growth remains on track.

• US and global growth are looking resilient as we approach 2026, driven by improving sentiment (both household and business), ongoing high levels of fiscal support, and further falls in interest rates (especially in the US).
• Inflation is expected to be contained, although further falls from current levels may be challenging (especially in Australia).
• Core commodity prices are holding up, with speculation of further Chinese government stimulus announcements.
• Pressure on governments to increase housing supply, aligned with lower interest rates, will increase demand for home building. The recent Australian government initiative around 5% deposit loans will encourage first home buyers back into the property market after several years of sitting on the sidelines.
• Many large-cap stocks appear expensive but there remain opportunities, particularly in the mid-cap stocks.
• Historically, bubbles don’t normally see lots of people doing searches online so the recent surge in Google searches for an ‘AI bubble’ may be a positive sign from a contrarian perspective, i.e. that we are not in a bubble yet.

Whilst fundamentals remain sound, share market valuations are the major headwind. With most global share markets trading close to record highs, returns from here could be restrained. Investors need to ensure their focus remains on relative value and avoid following the herd.

Please don’t hesitate to contact me should you have any questions.