By John Stewart
Chief Investment Officer at Farmers Trust Co.
Week in Review: AI Growth Trajectory Called into Question
Investors have been bidding up stocks related to artificial intelligence for the past couple of years as if the growth trajectory of many of these companies was infinite.
No price was too high, and any skepticism or pushback was met with instant derision.
This is a new world we’re entering, or so we’re told, and maybe that’s true – but castles don’t grow to the sky and stocks don’t go up in a straight line forever.
The market is finally starting to question whether or not the capital expenditures behind AI are sustainable, or even financeable, as Oracle is currently finding out – that company is looking to delay or scale back some of its data center projects due to funding constraints.
Investors are also starting to question the ultimate return on investment given the very high level of expenditure required on the front end for many of the tech companies.
Previously seen as asset-light businesses that required little in the way of capital investment, near-term cash flow projections are plummeting as capital requirements to build out AI infrastructure escalate.
AI is certainly not going anywhere anytime soon, but 2026 may be the year where investors realize there’s a lot of opportunity out there to make money in things that aren’t necessarily AI-related.
Featured Insight: The Market Doesn’t Care What You Paid
Aside from the obvious tax implications, it really shouldn’t matter what your cost basis is for a particular stock holding.
A stock that trades for $100 doesn’t care if you paid $50 or $150 for the shares.
The only thing that matters is where the stock goes from here. The future is, of course, uncertain, but in deciding whether or not to sell, hold or buy more, what you paid for the stock should be irrelevant.
Many losing positions have been held onto for much longer than they should have by investors hoping to get back to breakeven. There’s no guarantee that a stock will ever recover to the price you paid for it, and even if it does, it could take a lot longer than you think to get there.
I’ll let you in on a little secret – you don’t have to make your money back on the same stock you lost it on!
Looking Ahead: Investors Approach 2026 with Optimism
Investors tend to be an optimistic bunch – how could they not be while putting hard-earned capital at risk in the markets?
At the same time, most good investors are always considering what could go wrong, trying to avoid the biggest pitfalls while taking advantage of the best risk/reward opportunities.
After a successful, albeit somewhat tumultuous 2025, most of the research and analysis coming out of Wall Street is quite constructive on the outlook for next year.
There is an expectation that the market will continue to broaden its participation of winning stocks from just a handful of large tech companies into more of a rising tide lifts all boats type of trade.
That means owning more small caps and cyclical stocks that typically fall into the value category, something many investors have ignored over the past few years.