"Bye Bye, AI" in 2025

Artificial Intelligence (AI) was 2024’s most dominant stock market mega trend by far.

But next year will bring a sharp reversal for some of today’s best-performing AI stocks.

That’s not just a prediction either. It’s a fact.

Check out today’s video for proof…

Transcript:

Hi, I’m Andrew Zatlin, and this is Moneyball Economics.

I am currently looking at my stock portfolio and planning for the next year. I’m kind of a thematic investor in the sense that I don’t chase a company so much as I pursue certain themes. I ask “where does the economic and business data tell me there’s going to be growth?” And then I try to pick the right companies.

Because quite frankly where there’s growth, there’s a lot of potential for upside surprises, and believe me when I say I love upside surprises and what they do for stock prices, especially when those stocks are in my portfolio.

So I want to talk to you about two themes that I invested in this year, both of which have done very well, except one I’m going to start reducing my exposure to, and the other I’m going to start increasing my exposure to.

Alright, let’s start off with AI, artificial intelligence.

This has been the year of truly breakout, raging stock prices in this space. My semiconductor stocks have been raging Oracle, you name it. All these companies that are touching AI are doing phenomenally well. However, this phase is starting to slow down. And by this phase, I mean the infrastructure buildup phase.

That means slowing growth is coming down the pipeline and that’s a problem because almost all of these companies are priced to perfection. I know what I’m talking about because I was at Cisco Systems when the network infrastructure build out was going on. We could do no wrong. Cisco had their NVIDIA moment where they were the most valuable stock on the face of the planet, and then sales slowed down.

It didn’t take more than one or two quarters for Cisco’s stock price to utterly collapse.

Quite frankly, I think that’s going to happen next year for a lot of these semiconductor companies including Nvidia.

Why? Because I’m looking at the basic data that tells me sales growth isn’t just about to slow, it has been slowing. How do I know this? Well, when we talk about Nvidia and we talk about AMD, when we talk about infrastructure stocks, we talk about server building companies like Dell, it all comes down to one thing. It’s an infrastructure build out and all of them depend on one company to make it happen.

See, Nvidia doesn’t make their chips. AMD doesn’t make their chips. There’s a company in Taiwan called TSM that makes all those chips, right? They are a proxy for all things AI infrastructure related and guess what? Their sales peaked back in May and have been rapidly slowing down.

So this is a chart of TSMs billings year over year, their growth going back 12 years. Hey, this has been a great year. They got 40% year-over-year growth back in May. More recently. They’re barely above 30%.

And remember, these are their chip sales that they then sell Nvidia, who then sells on. So this is leading all these semiconductor companies by several months. What this data is saying is within about six months, TSM is going to struggle to see 2025 growth. Okay?

That’s the kiss of death for companies that are valued as high as they are. I know I’ve been there. I don’t know when this is going to happen. I don’t know when NVIDIA is going to have their “oh shit” moment, but I guarantee it’s next year and I don’t want to be anywhere near these companies because you’re talking about a pummeling of 20% overnight and then a slow downslide.

I don’t want anything to do with it.

So where do I want to be?

Well, I’ve been looking at this whole onshoring of manufacturing theme and it’s been doing really well for me. You might remember, I’ve been talking about one company called UTI, just to refresh your memory. If you are doing manufacturing and you need qualified manufacturing, skilled labor, things like welders, they have to be trained, they have to be certified and qualified. And there’s a company out there that does it called UTI.

Well, as recently as three weeks ago, not even I was telling you Donald Trump is going to be great business for UTI. They’ve already been moving up. Now they’re going to surge and guess what? Take a look at their stock price over the last month, almost up 50%. They’re raging because we are about to see a renaissance in the manufacturing space.

See, Donald Trump is going to one way or the other, increase manufacturing production on US soil. Okay? I want to dive deeper into that. I want to go beyond that with UTI. That’s the theme I’m going to embrace. I want to share with you the companies that are exciting to me, but first I want to share with you why.

Let’s start off with the opportunity. There are globally $700 billion of equipment sales every year. $700 billion in machinery being sold, of which $400 billion is being sold in the US. Now there are estimates that’s going to go up 7% next year. So that’s $28 billion more in money being spent and going to a lot of companies.

Well, it’s not just what’s happening and what’s about to happen. It’s being paid for. That’s interesting to me. When I mean paid for, I mean infrastructure subsidies like the infrastructure investment and jobs act like the CHIPS act for semiconductors or the Inflation Reduction Act.

We are talking about $75 billion in subsidized manufacturing. Okay? So I want to share with you three companies that I think are going to really benefit from all the stuff that’s going on. I think they’re going to benefit in the next year. Most of these companies, they’re very similar in terms of their dividend yields, 1-2% in terms of their PE in terms of their expected revenue growth. And that’s before we talk about what might be coming down the pipeline, before we talk about what might generate these upside surprises, so fairly similar.

Some are going to go faster, some are going to go slower, but it doesn’t take much for the market to discover them. And right now they are ignored in favor of ai. When fund managers decide they’ve had enough of ai, they’re going to look for where the growth is and they’re going to come here.

I like that their stock prices haven’t done really anything in the past year because that just leaves more upside. We are basically getting it on the ground floor. Lemme tell you about three companies now. One of them is Xylem. They do a lot of water purification filtration equipment. Well, guess what? Semiconductor companies are major water users. They’re very water intensive. A lot of equipment will be demanded from Xylem or we could go general.

Let’s talk Illinois Toolworks. I like Illinois Toolworks. You want to build stuff? Well, you need tools. ITW hasn’t really seen any revenue growth, but they still were able to get a 50% jump in income. That’s huge. Imagine what they could do when they actually get some revenue growth from factories starting up.

Another company that I really like is Emerson Electric. A lot of presence in automation equipment, and again, that’s what’s going to be needed. You start building new factories, you’re going to need new equipment. In the last year, their revenues are up 12%, but their net income was up 34%.

And another reason I like these businesses is because they’re very successful. They’re not one trick ponies. They’re very successful at diversification. So they’ve got existing businesses. They don’t do or die based on what’s happening in say, the semiconductor space.

Look, this isn’t going to happen overnight. I think this is early days for these companies, but once AI loses its rosy bloom, all these fund managers are going to take that money and chase other stocks, and I think this is where they’re going to go.

We are in it to win it. Zatlin out!