The first week of February brought significant turbulence to the markets, primarily sparked by Anthropic’s reveal of its Claude chatbot, which seemed to showcase capabilities that some investors found disconcerting. This revelation prompted a notable selloff across the software sector, as fears of obsolescence gripped the market.
Marta Norton, chief investment strategist at Empower Investments, likened the current scenario to the fate of BlackBerry, which struggled to compete as the iPhone redefined consumer expectations of smartphones. While BlackBerry continues to exist, its stock has plummeted by 98% since 2008.
Bloomberg reported that within just a week, approximately $1 trillion in market value disappeared amidst the selloff. Despite these challenges, not all analysts share the same grim perspective. Torsten Slok, chief economist at Apollo Global Management, offered a more optimistic outlook for the broader economy in his recent Daily Spark column.
Slok contended that the issues facing the software industry would not lead to a macroeconomic downturn. He presented three strong tailwinds that he believes will drive growth in the upcoming quarters, suggesting a shift from concerns about digital instability to physical economic expansion.
The first pillar of growth, according to Slok, is that the infrastructure needed for the AI revolution is already financially secured. He highlighted that significant investments for data centers have been committed through 2026. Despite the fluctuations in software stocks, the capital expenditures for the infrastructure required to support AI are likely to remain stable, thus providing a foundation for ongoing economic activity.
Substantial capital expenditure plans were also revealed by tech giants like Google, Amazon, and Meta, amounting to a combined $660 billion for 2026, underscoring the ongoing investment in the sector. Bank of America Research projected that AI-related capital expenditure could quadruple to reach $1.2 trillion by 2030.
The second favorable factor is the resurgence of manufacturing within the United States, bolstered by strong political support aimed at bringing back production capabilities for crucial sectors such as semiconductors, pharmaceuticals, and defense. This trend represents a pivotal shift in the economy, aiming to invest in more tangible assets that are less vulnerable to the volatility that often characterizes the tech sector.
The third growth driver is the government’s expansionary fiscal policy. Slok referenced data from the Congressional Budget Office indicating that government spending could boost GDP growth by 0.9 percentage points this year.
These anticipated increases in economic activity led Slok to a somewhat surprising assertion. He noted that the U.S. economic outlook is difficult to view pessimistically, which contradicts the prevailing market fears and concerns regarding the Federal Reserve’s monetary policy.
In his analysis, Slok highlighted that public markets represent a diminishing part of the U.S. economy, pointing out that the fluctuations in equity markets might not reflect the overall economic health. He remarked that while public companies like Nvidia, Apple, and Coca-Cola dominate media discussions, they only account for a small fraction of the total U.S. economy. Employment in S&P 500 companies encompasses only 18% of total employment, while their capital expenditures represent just 21% of the total.
He added that privately held companies make up nearly 80% of job openings, and 81% of firms with revenues exceeding $100 million are private, indicating a shifting economic landscape largely represented by non-public entities.
However, Slok also cautioned that a thriving economy could present its own challenges. While market sentiment currently focuses on potential rate cuts from the Federal Reserve, he predicts that discussions will soon shift towards the need for rate hikes, especially if growth accelerates as he expects. Such growth, fueled by data center investments, a manufacturing revival, and increased fiscal spending, could lead to inflationary pressures that necessitate a tightening of monetary policy.
For investors, the primary concern might not be the potential dominance of the AI sector; rather, the significant revitalization of traditional sectors such as construction, defense, and manufacturing could necessitate a comprehensive reevaluation of interest rate forecasts leading into 2026.
