A Constructive Outlook for the Back Half of the Year
The case for the economy growing at roughly 2.5% or better in the second half of the year — with inflation easing — rests almost entirely on what the corporate sector is signaling. The earnings picture is the foundation of that confidence. Earnings grew close to 30% in the first quarter, expectations are for above 20% growth in the second quarter, and there are consecutive quarters of 20% earnings growth visible on the horizon. By that measure, corporate America looks solid, and corporate spending remains in place.
Layered on top of that healthy earnings backdrop is the technology sector and, specifically, the data center build-out. Between strong corporate spending and the AI-driven infrastructure expansion, the economy is effectively "firing on all cylinders." Pulling these threads together, the broad market view and the broad economic view both look good, with the economy expected to run at roughly 2.5% to 3% throughout the remainder of the year.
This is described as a difficult setup to poke holes in: you have strong earnings combined with a reasonable valuation — a multiple of around 21 times. Even from the standpoint of incoming economic data, conditions have held up relatively strong.
The One Real Risk: Inflation
When asked what the biggest risk is that could challenge this bullish setup, the answer is clear and singular: inflation. Core inflation is at 3% and headline inflation is at 4%. There is also a new Fed chair, Chairman Warsh, who made comments the previous week that some people took a little harshly. The view here is that he should be given time, and the market needs to see what he actually brings to the table. Aside from this inflation-related "speed bump," everything else generally looks pretty good.
Oil and Geopolitics as a Tailwind
Oil pulling back into the $70s, combined with geopolitical tensions hopefully calming, was raised as a potential tailwind for both equities and the broader consumer story. The benefit works on two levels. First, it removes some of the uncertainty hanging over the market. Second, it directly helps the consumer, who no longer has to pay as high prices at the pump. Because this is a consumer-driven economy, lower fuel costs matter — even as the AI build-out simultaneously drives the business side of the economy. Taken together, the economy looks set for that 2.5% to 3% run for the rest of the year, and conditions look pretty good across both the broad market and broad economic views.
AMD: An Underappreciated CPU Story
Turning to individual names, AMD has shown strong continuing momentum even after a substantial run. The question is what the market may still be under-appreciating about AMD's role in AI relative to its closely linked peers. While AMD is trying to position itself as a second competitor to Nvidia, that call is still a long way off.
There is plenty of room to find investments within the AI build-out. The landscape includes connectivity players, chip makers, and the GPU names like AMD and Nvidia. The particular appeal of AMD is that it offers exposure to two distinct pieces. On the GPU side, AMD is admittedly a distant second place to Nvidia. But AMD also gives investors a piece of the CPU business — and that CPU business is underestimated. Many parts of the data center build-out require CPUs, not GPUs. Furthermore, as inference becomes a bigger part of the business than training the models, that shift plays directly to AMD's strengths. In short, the CPU exposure and the growing importance of inference are where AMD's under-appreciated value lies.
Credo and the Connectivity Theme
Credo is tied to a pickup in both capital markets and AI infrastructure. When weighing which theme has more upside — a rebound in capital markets or the continued, rampant AI spend — the conclusion is that it will be a combination: there will be a broadening out within the markets, but technology will remain the leadership. That makes it "the best of both worlds."
As for Credo specifically, it sits on the connectivity end of the AI ecosystem — the optical side. Credo makes components that are more cost-effective than some of the more traditional optical players, which gives it a really good business.
Goldman Sachs and the IPO and Capital-Raising Pipeline
Goldman Sachs is positioned to benefit from the wave of IPOs and capital raising. The recently completed SpaceX IPO went off without a hitch, and more IPOs are expected to come through the pipeline as the AI build-out progresses. Goldman Sachs is expected to be a major participant. Beyond IPOs, companies are also raising capital in the markets — including the big hyperscalers and Nvidia, which are tapping both the debt and equity markets. Goldman Sachs is expected to be a big player across all of this activity.
On the question of whether it will be difficult for the market to follow the size and scale of the SpaceX offering: it is unlikely anyone will beat the size of SpaceX at a $2 trillion IPO. However, two more big ones are coming down the pike — OpenAI and Anthropic — along with a lot of other players that will come online into the public markets out of the whole AI build-out. There is a long pathway ahead, and it is only just beginning with SpaceX.
Key Questions and Answers
What gives confidence the economy can stay resilient at 2.5%-plus growth in the second half? Everything coming out of the corporate sector — roughly 30% earnings growth in Q1, expectations above 20% in Q2, and consecutive quarters of 20% earnings growth ahead — alongside still-solid corporate spending and the tech/data-center build-out.
What is the biggest risk that could challenge the bullish setup? Inflation, with core at 3% and headline at 4%, plus uncertainty around the new Fed chair, Chairman Warsh — though he should be given time. That is the only real speed bump.
How much of a tailwind are lower oil prices (into the $70s) and calming geopolitics? A meaningful one — it removes uncertainty and lowers prices at the pump for a consumer-driven economy, reinforcing the 2.5% to 3% growth outlook.
What is the market under-appreciating about AMD's role in AI? Its CPU business, which is underestimated and essential to many parts of the data center build-out, plus its positioning to benefit as inference grows relative to model training — even though its GPU business is a distant second to Nvidia.
Which has more upside — capital markets rebounding or continued AI spend? Both — the market will broaden out while tech remains the leadership, making it the best of both worlds.
Will it be difficult to follow the size and scale of SpaceX? Probably no one will beat SpaceX's $2 trillion IPO, but OpenAI, Anthropic, and many other AI-related companies are coming to the public markets, marking a long pathway that is just beginning.
