01 Dec 1st December 2025

Index Movement Last Week

Last week was short because our American friends spent the end of it depleting turkey stocks. But it was a great week for markets that decided their fears from the week before were completely misplaced.

Sentiment now is a December rate cut is back on the cards. The Fed is concerned about employment more than inflation. Powell says companies are in no-fire, no-hire mode and he is concerned about what might happen if they change the first part. Seems a bit premature to me but I would welcome a rate cut to send my stocks up higher.

In other news, Alphabet (Google to you and me) released their latest AI model which is supposed to be better than the OpenAI model. On top of that they said they have a new Tensor chip.

Quick technology lesson here.

The computer, as we know it, runs on a CPU. (Central Processing Unit). Intel is the grandaddy of CPUs. A CPU can process one bit of information at a time. AI uses GPUs (Graphical Processing Units). Nvidia makes these and they were originally used to display games and video on a computer because they can do multiple things at the same time. Doing things at the same time is what AI needs.

Google’s TPU is specifically designed for what AI needs. Google says it is better than the Nvidia GPU. But they would say that wouldn’t they? Meta said it is considering purchasing the Google chip. But considering is not actually buying billions of dollars worth.

Jensen Huang of NVidia responded saying the Google chip is a “generation behind”.

What all this led to was Alphabet stock hitting all time highs and NVidia stock falling to now be 13% off its highs.

It does all make me laugh. This is not the end for NVidia. It will come back so you can take this opportunity to buy some more now.

The AI infrastructure race is much like a horse race. As the race progresses the leader will change. But then it will change again at the next bend. Each company making chips will come out with something new and better, and then a short time later the other one will release a new model and it will be better and so on.

Six months ago Alphabet stock was dawdling along as everyone thought AI would destroy its ad business. Today it is the best performer of the Magnificent 7. Its ad business is still growing and now it is building chips and AI models and already has the data centres.

The same thing will happen to NVidia. Out of favour today and back in favour tomorrow.

On the topic of AI – happy 3rd birthday ChatGPT.

ChatGPT launched as a free public demo three years ago yesterday. It was meant to just collect feedback but immediately blew up to be much more than that. Within a week it had a million users and by early 2023 it was the fastest-growing consumer app ever.

Since then it has gone through several iterations. Each one making it faster, more accurate and more capable. Millions now use it for work. The ripple effects have been huge. ChatGPTs popularity has pushed nearly every major company to accelerate their own AI tools.

Just imagine what it will be capable of when it turns six, in just three years from now.

Changing topics.

I want to talk some more about this idea that too much is being spent on AI infrastructure. Accounting nerds keep doing calculations and saying that to recover the cost of these chips companies are going to have to make extraordinary profits from AI.

Let’s turn this argument on its head a bit and think a different way.

Lets think of the S&P500 as if it was a company. In 2018/2019 virtually all (96percent) of its after-tax profits went to dividends and stock buybacks. Today that ratio is at 81% because companies are spending capital on things for the business.

This is a good thing and justifies higher PE prices for these companies.

Think of it this way. You own a company and decide to give the management team an extra $1million with the instruction to what they think is best.

How would you feel if your management took that cash and paid it all out to shareholders as a dividend?

What would it say about that management?

Paying cash out to shareholders means you don’t know what else to do with it. You have no plans for the future.

Surely you would prefer your team to take that cash and invest it in the future of the business. That could be an acquisition or maybe an expansion or maybe building new infrastructure somewhere.

That’s much more like what you would expect if you gave the team the cash. You would want to see them do something productive with it.

There is no real difference between you giving them cash and them earning cash.

A company that just pays out all the cash it generates is going nowhere and so is worth very little

A company that re-invests that cash in itself so it makes more cash next year is worth more.

Companies spending money on AI infrastructure is a good thing. Not a bad thing and those companies deserve to be valued higher. Which is exactly what the market is doing.

An old mentor once said to me, if you think the market is wrong, it is more likely you don’t understand.

Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.