Expectations and capital drive markets.

When capital is cheap, investors fund businesses with poor economics. Rising valuations attract more money, more money pushes valuations higher, and weak fundamentals get overlooked.

But that cycle cannot continue forever.

Eventually, businesses must generate the cash flows necessary to justify the capital invested in them. If they don’t, and fresh capital gets expensive, lofty valuations revert to economic reality – often with vicious speed.

That dynamic is increasingly relevant in the AI trade, where enormous amounts of capital continue to chase businesses and projects that have yet to generate sufficient cash flows. Risk is rising.

The market’s blind focus on buying everything related to AI has created opportunity elsewhere, particularly in stocks that get overlooked for being in more pedestrian (compared to AI at least) businesses.

Our research identifies both overvalued and attractive stocks: where expectations have outrun fundamentals and where the market may be underestimating future cash flows.

See where we’re finding opportunity, identifying dangerous liquidity events, and reconciling economic reality with AI narratives.

Long Idea:

The market is pricing this business as if its strategic shift has no value, and that the company cannot mitigate ongoing risks. We think that expectation is far too pessimistic and creates Very Attractive Risk/Reward.

Seven Reasons the AI Bubble Is About to Pop:

At what point does “smart” money stop throwing capital at a cash burning endeavor? If it’s anytime in the foreseeable future, then investors must prepare for the consequences of AI stocks crashing.

Sounding the Alarm – The AI Trade is Breaking:

There are multiple signs of tightening liquidity, and liquidity squeezes cause market corrections. See how Wall Street is scrambling to sell off positions before the bottom falls out.

Model Portfolio Updates:

We updated our Dividend Growth Stocks Model Portfolio.

Danger Zone Podcast:

CEO David Trainer joined Chuck Jaffe to discuss the seven reasons the AI bubble is about to pop, and why liquidity is in the Danger Zone.

We hope you had a great week!

See a preview of upcoming research below.

Upcoming Research