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10 charts that expose what investors are getting wrong

As a young macro strategist in the late 1990s, Gerard Minack called the peak of the tech bubble. He was a little early. The NASDAQ went on to double before eventually falling 85%. Back then, he'd thought he'd never get to see a bubble like that again. Lucky for Minack, history doesn't repeat, but it rhymes.

"This is more of an earnings bubble than a valuation bubble," Minack says.

He notes that sell-side forecasters are projecting US tech will compound earnings at over 30% annually for the next five years (see below). This has surpassed the peak of the TMT bubble. The difference, Minack says, is that the earnings are real (for now).

The concern is what happens next. The hyperscalers are collectively expected to spend US$800 billion on AI infrastructure this year alone. To justify that CapEx at even generous margin assumptions, they need to generate US$472 billion in new AI revenue within two years (the equivalent of four Microsoft Office 365 businesses built from nothing).

Minack thinks they'll fall short, and the market will price that in well before earnings actually deteriorate.

What most investors are missing, he argues, is that the AI boom has never really been an American story. The chips powering the buildout are made in Taiwan and Korea. The GDP boost to the US has only been roughly 0.3%. In fact, he believes that US equity market dominance may have already peaked, and that we could now be in for a decade of underperformance (see below).

The other risk getting far too little attention, in Minack’s view, is the Strait of Hormuz. Equities are at all-time highs, yet the supply buffers (drawn-down inventories and sanctioned oil) are weeks from exhaustion. A prolonged closure points toward a global recession.

"There's nothing on your Bloomberg that tells you investors are bracing for that," Minack says. "But there it is." If he’s right, the market could halve from here.

In this interview, Minack takes advisers through 10 charts that will challenge consensus views on the market.

5 key learnings from Gerard Minack

1. Today’s power companies are the new telcos

Minack draws a direct parallel to the dot-com era, when telcos were considered the sexy infrastructure play of the digital age, before collapsing 40% before anyone saw it coming. He thinks power/utility companies are filling that role now, riding AI energy demand but ultimately vulnerable when new supply arrives.

2. The real AI risk is in private markets

When we recorded this episode, Minack was already flagging the risk that a wave of loss-making AI companies hitting public markets could create a dangerous new layer of valuation excess. At the time, SpaceX, Anthropic and OpenAI were eyeing trillion-dollar-plus listings, all while making no money. Since our recording, the numbers have only grown.

3. AI’s GDP boost isn’t going to the US

US tech imports surged by $230 billion in a single quarter. That money is flowing directly into Asian GDP, primarily Taiwan and Korea, not the US economy. The narrative that AI will supercharge American growth is, in Minack's words, "simply wrong."

4. The Fed cannot cut rates

Business price surveys, when aggregated, are consistent with core inflation closer to 4% than 2%. Minack argues that without a recession, there is no justification for rate cuts. The new Fed chair is just one vote on a committee of 12.

5. Japan is the most compelling opportunity right now

Structural corporate reform, a dirt-cheap yen, and a massive pool of offshore Japanese capital that could repatriate, make Japan Minack's favoured market for the next cycle. The catch: Japan is the single most economically sensitive equity market in the world. If there's a global recession, it gets hit hardest first.

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In case you missed it

Last week, we sat down with Australian Ethical’s Chief Impact & Ethics Officer Alison George. In this episode, you’ll learn how to sniff out red flags and greenwashing from a mile away.

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