Economic Commentary

The broadscale investment into AI and its related industries has been a primary factor influencing capital markets across the globe over the last two years. Within global equity markets, companies that are perceived as beneficiaries of this trend have benefited handsomely via appreciated stock valuations and higher projected future earnings. Industries deemed ripe for obsoletion due to AI have struggled to keep pace. While this phenomenon is broadly understood, what is more opaque are the downstream and indirect effects that this large-scale investment is having on other capital market segments.

One notable disruption that has been playing out in recent months is the effect that AI is having on the yield of 30-year Treasuries. The 30-year Treasury yield is a critical macroeconomic benchmark that reflects the return investors demand in exchange for lending money to the U.S. government for three decades. In August, the 30-year Treasury yield hit 5.31%, a level not seen since 2007 and reached auction highs not experienced since 2001. Treasury prices at the long end of the curve are not directly controlled by the Federal Reserve; they are dictated by the fundamental market forces of supply and demand. Historically, yields reach these cycle highs in response to sticky inflation expectations, resilient underlying economic fundamentals or mounting concerns regarding national debt and supply pressures.

Today, we are experiencing a confluence of all three. Inflation continues to be stubbornly persistent, exacerbated by rising energy costs directly tied to the lack of diplomatic progress and ongoing geopolitical tensions between the U.S. and Iran. Furthermore, the sheer volume of Treasury issuance required to fund the national deficit is placing supply pressure on the market at a time when investors are pouring more and more of their capital into AI related investments that are perceived to have higher long-term return potential. Investors are simply demanding a higher premium to absorb this debt, effectively pricing in the expectation that interest rates will remain structurally higher for longer than previously anticipated.

This elevated yield environment has considerable implications for equities, acting as a gravitational pull on more rate-sensitive, long-duration technology stock valuations. In July, the headline index performance was deceptively calm, as a relatively flat S&P 500 return masked a period of sizable internal rotation beneath the surface. Throughout the month, equity markets witnessed a sharp, decisive pivot away from mega-cap technology and a corresponding migration into value-oriented sectors. High-flying semiconductor and artificial intelligence infrastructure stocks faced intense selling pressure. Importantly, however, capital did not flee the market; it rotated efficiently into areas like Energy and Financials. In August, despite strong Q2 earnings from many technology and semiconductor companies, markets continued their rotation out of these sectors in favor of industries that are trading at more reasonable valuations.

This recent reversal sets a fascinating stage for what is shaping up to be the most consequential market event of the fall: the anticipated October IPO of Anthropic. Slated to potentially command a $2 trillion valuation, this would stand as the largest stock market debut in history. The financial metrics driving this offering are, frankly, unprecedented. While Anthropic’s annualized revenue run-rate surged to $65 billion at the end of July, in order to justify a $2 trillion price tag, underwriters are heavily relying on internal forecasts that project revenue aggressively scaling to between $190 billion and $200 billion by 2028. While this would be unprecedented, the company was able to go from $9 billion in revenue at the end of 2025 to $65 billion in just seven months, so perhaps it is not entirely unfounded.

While capturing even a fraction of the estimated $15 trillion global knowledge-worker market makes these figures theoretically possible, pricing an IPO based on revenue expectations set two years into the future, rather than current earnings and established multiples, is somewhat unconventional. However, the valuation methodology is more commonplace for rapidly growing technology companies such as this.

As stewards of your capital, we are monitoring this historic offering with a healthy dose of skepticism; for those who are interested in participating in the IPO, I would like to refer you to my colleague Sam Ellis’s newsletter article titled “The IPO Hype is Back” which was published in the July Perspectives. To borrow from his article, “If you choose to participate, make sure your investment is sized appropriately within your overall financial plan and that you are not investing more than you can comfortably afford to lose.” It is uncertain to us what the future may look like for companies that are closely tied to the artificial intelligence build out; however, maintaining a disciplined and diversified portfolio appears to be the best approach at achieving long-term investment goals regardless of what the future brings.

Heading into the final quarter of the year, we remain focused on how the broader AI buildout is affecting capital markets to ensure our strategies align with your financial goals. We will continue to seek out opportunities that balance growth potential with prudent risk management. Above all, we are deeply grateful for your continued confidence and the privilege of managing your capital.