The Market Has Moved On From War
Equity markets are once again sitting at record highs, and the dominant narrative has shifted decisively back to artificial intelligence. Recent geopolitical tensions in Iran, which briefly seized investor attention, have been mentally filed away as a temporary disruption. Whatever happens there is being treated as a passing event, while the AI capital expenditure cycle is being viewed as a multi-year — possibly multi-decade — phenomenon. Inflation is acknowledged as a concern, but the prevailing view is that it too will prove transitory. The real trade, in the minds of most market participants, is firmly back on for AI.
The Bubble Question and the Discipline of Position Sizing
Retail investors in particular need to take a sober view of the environment. The possibility that we are in a bubble cannot be dismissed. It could burst tomorrow, next week, or five years from now — no one knows. The appropriate response is not to abstain from these names, but to engage with them carefully. Two principles matter above all: do not chase stocks that have just made parabolic moves, and watch your position sizing. Concentrating a portfolio in a handful of high-flying names like Sandisk or Micron is an invitation to ruin if conditions reverse. Weighting positions appropriately means that even in a downturn, the damage remains survivable.
A lot of the recent action carries the unmistakable fingerprint of FOMO. The chip space, in particular, illustrates a broader shift in how investors are thinking. Semiconductors were historically seen as cyclical, but the current view is that the cycle is not over — it has simply lengthened. The bottleneck trades extend well beyond traditional chips into memory, photonics, and space, where the latter is partly a SpaceX story and partly a data-center story, and where prices have gone parabolic.
The Squeezed Consumer
While the AI trade dominates the upside conversation, the consumer side of the economy looks more troubled. Oil prices remain in the 90s, and even if the current conflict ends, prices are unlikely to fall back to 60 overnight. Too much damage has already been done. The bond vigilantes are pricing in inflation, the Fed is stuck, and middle-to-lower income households are being squeezed hard. Any company whose business model depends on that demographic looks risky right now. With so many alternative opportunities available, there is little reason to fight that particular tide.
A Fed With Its Hands Tied
The Federal Reserve faces an almost impossible situation. Inflation remains elevated and is not moving in the right direction. We have not seen a two-handle on inflation in years — well beyond what was originally hoped for. Realistically, the Fed will likely deliver nothing of substance this year. Being Fed chair right now must be a deeply uncomfortable role: brought in with a mandate to lower rates, yet structurally unable to do so. The political pressure from the White House is intense, and prediction markets like Polymarket have even floated the possibility of a rate hike. A hike feels almost unimaginable given the political fallout it would trigger, but a continuation of the pause is the most realistic outcome.
Owning the Bottlenecks: Peel the Onion
One of the most useful frameworks for navigating this environment is to focus on the bottlenecks — anything that constrains the continued progress of AI. But the trade has evolved. In 2023, simply buying anything labeled "AI" was sufficient. Today, the action has migrated into memory, photonics, and space. Tomorrow, it will move somewhere else. The discipline is to keep peeling the onion, layer by layer, and to stay one step ahead of where retail capital is flowing.
A good example of this thinking is glass substrates, which represent the next layer of photonics infrastructure. Photonics works far better when paired with glass, and one company well-positioned in that area is SHMD (Schmidt). The stock has already advanced into double digits year-to-date and is up roughly 150% year-over-year, but the underlying thesis still has runway because so much of the market has yet to look past the obvious names. You play the trade until it's over — but always with position sizing in mind.
Quantum and the Picks-and-Shovels Balance
Another worthwhile habit is to pay close attention to where federal money is flowing. The White House is telegraphing its priorities to investors, and quantum computing is one of the clearest signals. Significant federal dollars are being directed into quantum, making it a sector worth tracking. INFQ (Inflection) is an attractive name in this space — slightly under the radar compared to the more widely followed IONQ and Rigetti. The general principle is to look for the company that not everyone already knows about.
Cleveland Cliffs offers a contrasting profile: a picks-and-shovels name producing the steel that goes into the towers that need to be built at scale. It is not strictly an AI name, but it is intimately connected to the AI buildout. Heavy-asset, low-obsolescence businesses of this type have an enduring appeal. While Cleveland Cliffs has underperformed year-to-date, its longer-term trajectory has been strong, and the setup suggests it is poised to participate again.
The Barbell Approach
The strongest investing posture in this environment is a barbell. On one side, hold some of the ridiculous high-flyers riding the AI thematic wave. On the other, anchor the portfolio with the picks-and-shovels exposure that underpins the entire buildout. This kind of "halo" theme — combining the leading-edge speculative names with the heavy-asset companies that enable them — provides both upside participation and ballast. The recent launch of HALX as an ETF reflects this exact philosophy. In a market characterized by both extraordinary opportunity and genuine bubble risk, balance is the discipline that separates durable returns from devastating drawdowns.