Tech cycles: how artificial intelligence and market fundamentals shape today’s rally

Gary Paulin, writing in the Weekender, frames the current rally as the product of two forces: compounding breakthroughs in Artificial Intelligence and stronger market fundamentals. He argues that today’s cycle differs from the dot‑com era because earnings concentration now matches tech concentration, capex is funded by cash flow rather than frothy capital markets, and leading technology franchises carry large backlogs. Those backlogs and real profits make prices rich but not necessarily irrational relative to earnings power.

The note highlights bottlenecks and strategic shifts that underlie the rally. Humanoid robotics could become a major market once human‑level dexterity is achieved, which would multiply demand for Artificial Intelligence chips. The world currently produces about 6 million Artificial Intelligence chips a year, concentrated in Taiwan, prompting strategic moves by firms such as Intel and policy responses from China toward chip self‑sufficiency. Large cloud deals underscore rising power and infrastructure needs: the Oracle contract cited would require roughly 4.5 gigawatts of power, and policymakers including U.S. President Donald Trump have linked winning the Artificial Intelligence race to winning the electricity race.

Pauline also outlines market mechanics reinforcing the move. Fed rate cuts lower hedging costs and can increase dollar hedging activity while supporting earnings, and investors are rotating toward industrials and tangible assets-the S&P Metals and Mining Select Industries Index is up about 50% year to date. He contrasts the current era with 2000, noting that time and a larger base of data, computers and infrastructure make Artificial Intelligence growth more likely to be exponential. Tokenization and new payments protocols that let AI agents transact could further expand demand for digital infrastructure. The conclusion: valuations are expensive and a short‑term top is possible, but based on compounding innovation and earnings fundamentals, the situation does not yet look like a bubble.