Dougherty Dispatch: July in Review
Economic and Market Updates
The month of July was a relatively flat period for the markets, with the S&P 500 experiencing a difference of -0.2% from the start of the month. This followed excellent performance for markets during the first half of the year. Recent news has been covering questions about the Iran War and broad economic trends, and more specifically what forms of returns we are seeing from the tremendous AI investments many of the largest companies in the world are making.
Tech Capital Expenditures: What are they, and how do they relate to Artificial Intelligence?
Companies such as Alphabet (Google), Meta, Amazon, and Microsoft continue to build out a tremendous amount of data centers across the country and world, leading to the rise of a figure known as their “Capital Expenditures” or Cap Ex for short.
It is important to note that these companies are some of the most well-regulated and managed in the world, and that there is a detailed process in place when they decide how much to invest in a certain area, what the potential return is, and the timing to make such an investment.
These companies continue to invest in AI because they see an opportunity in technology for the benefit of their shareholders. While many short-term focused investors or funds may see increased spending and become fearful, long-term investors who continue to hold stock through these periods of investment can see incredible returns over time.
Even in the short term, companies are seeing incredible results from AI spending. Gemini, an AI model powered by Google, recently becoming the company’s fastest growing product ever and is now serving over 1 billion monthly active users. It is no wonder that Google has seen its earnings grow by 79% since they released Gemini in February 2024.
As many technology companies continue to grow their businesses faster than their stock prices have risen, we see many companies trading at bargain prices such as Meta, Microsoft, Uber, Booking, Nvidia and Google.
Three Consecutive Great Years—Are We in a Bubble?
While asking “Are we in a bubble?” is always a difficult question to answer given the wide range of possible market outcomes, continued growing corporate profits justify the three-year price increases of the S&P 500.
One of the largest companies in the world, and one that is owned by many of our clients, Nvidia Corporation, is trading close to its five-year low valuation compared to its projected profits, as displayed below.
Regardless of bubbles or year-to-year market fluctuations, you should have an appropriate mix of stocks and fixed income investments to support your lifestyle and goals.
That is why we take great care to review our client’s portfolio’s and situations, making portfolio changes when appropriate. This ensures that in the event of a market downturn, their investments can continue to support withdrawals, just as they do during bull markets.
Thank you for Reading!
We are honored to serve as your trusted advisors. Let us know if you have any life changes which may require a review to your financial plan, we are always happy to help.
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Warmest regards,
Dougherty Investment Advisors
A Tradition of Excellence
4048 Deltona Blvd | Spring Hill, FL 34606
