Lexicon Financial Group Weekly Update — August 20, 2025

Aug 22

“This time may seem different, but all too often a deeper look shows it is not. Encouragingly, history does point to warning signs that policy makers can look at to assess risk—if only they do not become too drunk with their credit bubble–fueled success and say, as their predecessors have for centuries, “This time is different”.”

— Carmen M. Reinhart, a Cuban-American economist

From the desk of Craig Swistun, CIM, MFA-P, Portfolio Manager, Raymond James Investment Counsel, and Wayne Hendry, Client Relationship Manager, Raymond James Investment Counsel

ISSUE 193

Looking Around

OpenAI CEO Sam Altman thinks the artificial intelligence (AI) market is in a bubble.

In his opinion, we are in a phase where investors are overexcited about AI and that is when bubbles happen. Altman appears to compare this situation with the infamous dot-com bubble of the early 2000s, which ended in a stock market crash that resulted from massive investor enthusiasm for internet-based companies during the late 1990s. Between March 2000 and October 2002, the Nasdaq lost nearly 80 per cent of its value after many of these companies failed to generate revenue or profits.

Altman is not alone in thinking that investment in AI is moving too fast. Alibaba co-founder Joe Tsai, Bridgewater Associates’ Ray Dalio and Apollo Global Management chief economist Torsten Slok have all raised similar concerns. Last month, Slok stated in a report that he believed the AI bubble of today was bigger than the internet bubble, with the top 10 companies in the S&P 500 more overvalued than they were in the 1990s.

So, are we in an AI bubble?

Well, according to Ray Wang, research director for semiconductors, supply chain and emerging technology at Futurum Group, Altman’s comments carry some weight but he believes that the risks are company-dependent. Wang contends that the fundamentals across the supply chain remain strong, while the long-term trajectory of the AI trend supports ongoing investment. He does, however, see an increasing amount of speculative capital chasing companies with weaker fundamentals and only perceived potential, which could create pockets of overvaluation.

This is not the first time that fears of an AI bubble have grown. There was a surge at the beginning of this year, when Chinese start-up DeepSeek released a competitive reasoning model. It claimed one version of its advanced large language models had been trained for under USD 6 million. This is a fraction of the billions being spent by U.S. AI market leaders like OpenAI. The question here is, will these billions of dollars lead to the expected return on investment? Altman has stated that OpenAI’s annual recurring revenue is on track to pass $20 billion this year, but that it still remains unprofitable. (1)

Investor enthusiasm for AI wavered on Tuesday, as major technology stocks fell after Altman’s warning of a potential bubble and an MIT study claimed 95 per cent of companies see no returns from generative AI. Nvidia fell 3.5 per cent and Palantir almost 10 per cent after. It is worth noting that this occurred despite the MIT study attributed failures to corporate “learning gaps” and flawed integration rather than actual AI model quality. The investor reaction here is a sign of growing concerns about AI’s longer-term commercial viability. (2)

All of this has proved yet again that the fundamentals of investing, including diversification, having a financial plan that adapts to where you are in life, and not giving in to the fear of missing out on the latest shiny stock or sector, are still valid even in today’s AI and tech world. We are here to help you with all of these and more, and beginning in September, we will be contacting you for a meeting.

Read and Watch

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Looking Back

Canada’s main stock index, the S&P/TSX composite index (TSX), edged lower to cap off last Friday's trading session, thanks to losses in technology stocks. But it did manage to grind out a 0.5 per cent rise for the week. The TSX is up 12.9 per cent for the year and it is August (usually a quiet month for the index), so it may be taking a pause. Also, the TSX could benefit from an upcoming rebalancing on the U.K.'s benchmark FTSE 100 index. This index comprises many different countries, and its allocation to Canadian stocks has been relatively lower. When the rebalancing happens, there could be purchasing of more Canadian stocks, creating more buying demand. (3)

Major stock markets in the United States (U.S.) finished higher last week, driven by some favourable economic data that helped fuel bets that the Federal Reserve (Fed) would lower short-term interest rates at its next meeting in September. The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all advanced last week.

Thankfully, tariff and trade news generally took a back seat to economic data and rate cut speculation last week. However, last Monday did bring news that the U.S. and China had agreed to extend the deadline for higher tariffs for another 90 days while a broader deal is negotiated.

July inflation data that was reported by the Bureau of Labor Statistics (BLS) sent mixed signals. Headline inflation cooled modestly in July, with month-over-month inflation dropping to 0.2 per cent from June’s reading of 0.3 per cent, driven by declines in grocery and energy costs. However, core inflation—which excludes volatile food and energy prices—accelerated to 0.3 per cent from 0.2 per cent in the prior month. This was close to being in line with consensus estimates and pushed the year-over-year measure up to 3.1 per cent - the highest since February. Notably, much of the increase was due to services costs, while tariff-impacted categories saw mixed readings.

Stocks rallied as expectations for a September rate cut jumped, following the report, as investors seemed to take the lack of a sharp, tariff-driven acceleration in inflation as a sign that the Fed will be able to lower borrowing costs at its next meeting. Stocks fell last Thursday when the BLS reported that its producer price index (PPI) - separate measure of inflation that gauges price increases at the wholesale level - reaccelerated in July after holding steady in the prior month, rising 0.9 per cent, compared with expectations for around a 0.2 per cent increase. However, most indexes recovered and finished the day little changed.

The pan-European STOXX Europe 600 Index ended 1.18 per cent higher on easing trade tensions and hopes of progress on ending the Russia-Ukraine conflict. Investor sentiment was bolstered by growing optimism over the possibility of a U.S. interest rate cuts this year. Other major European stock indexes rose as well.

Japan’s stock markets registered strong gains over a holiday-shortened week, thanks to Japan’s better-than-expected economic growth in the second quarter lifting sentiment. A strong Japanese corporate earnings season and an improving global trade outlook, given signs of easing U.S.-China trade tensions, also lent further support.

Stock markets in China rose, after the U.S. and China agreed to renew a tariff pause on each other’s products until November. This delayed a steep tariff hike that was set to come into effect last Tuesday. On the economic data front, China’s statistics bureau reported that consumer price growth was flat year on year in July, dropping from June’s modest uptick that snapped a four-month streak of declines. Factory deflation, however, continued for the 34th consecutive month, with producer prices declining 3.6 per cent, matching June’s reading at the lowest level since July 2023. Industrial output also slowed from the prior month, growing 5.7 per cent year on year compared with a 6.8 per cent rise in June, as did year-to-date fixed asset investment, which rose 1.6 per cent versus 2.7 per cent growth in 2024. All three readings were below economists’ forecasts. (4)

The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable, but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.