Is AI still the market's strongest investment opportunity?

This week's newsletter explores why AI continues to lead the financial markets, the industries best positioned to benefit, and how tactical investing can help you identify opportunities while managing risk.

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Transcript

SPEAKER_00 0:14

Well, welcome to Tactical Investing for your strategic plan. I am Mark Melrose, an author, investor, and United States Marine Corps veteran. So today I'll cover the major financial, economic, and market developments from last week. We'll explore how tactical thinking applies to investing in the financial markets. I'll also share a story illustrating the difference between tactical and strategic planning and how both contribute to better investment decisions. Alright, and finally, I'll provide an update on my weekly tactical investment pick and explain, of course, the reasoning behind it. Alright, so last week the stock market demonstrated a remarkable resilience despite uh renewed geographical or geopolitical, I should say, tensions and continued uncertainty surrounding interest rates. But uh investors seemed to uh you know ignore the headlines of the issues in the Middle East, and buying interest uh quickly returned, particularly in technology and artificial intelligence-related companies. Uh looking at the close for last week, for example, the Nasdaq uh gained uh 1.7 percent for the week. Semiconductor and AI stocks uh rebounded to help that uh that return or that uh 1.7, and then the SP 500 advanced 1.2 percent, while the Dow Jones industrial average declined roughly a half a percent, and uh that's reflecting a continued rotation away from some traditional industry, industrial companies, I should say, and into growth-oriented sectors. Now that was uh going on for last week, and that was my headline or my commentary for what happened last week. Uh, and last week that's true, but uh, I am recording this after the market traded on Monday, so this is Monday night, and we saw a lot of uh resurgence in the higher oil prices, uh, looks like maybe higher interest rates, and that's not always good for, well, not always, it's not good for the semiconductor industry and a lot of technical uh uh stocks out there. Uh good for uh the uh uh energy stocks that uh we purchased a couple of weeks ago, but not so much for the technology and the AI uh group. You know, geopolitical uncertainty remained, like I said, front and center for last week. Uh renewed US uh Iran military actions, you know, that's pushed uh crude oil higher. Uh markets uh quickly recovered though as the week uh as investors you know continued to uh or concluded that the uh industry uh supplies through the oil supplies through the Straits of Ramuse are uh were unlikely to face prolonged uh distributions. Now I read that in uh in a bit of a jest because I wrote this uh last yesterday, and going through uh the uh process today, I can honestly say it looks like it might be a little bit more uh longer term than we had originally think or thought last week. Now, I want to also bring up an interesting uh vision of what's going on out there. For example, Ukraine and Russia are at war. Well, in my eyes, especially from an economic standpoint, uh it's not just you uh the Ukraine and Russia, but also from a fearful and economic standpoint, Europe's involved here. So you really have Ukraine and Europe on one side and Russia on the other. Uh now the exact same thing is happening with the US and Iran. Uh, US and Iran may be trading the missiles uh themselves, but the Mideast has a very big vested interest. First of all, I can't understand why these Mideast countries allow Iran to shoot at them, they don't shoot back uh more aggressively. So uh it's the US and Mideast versus Iran. Um something to keep in mind when you're listening to the news and the perspective on things, okay? Um, but you know, artificial intelligence does continue to lead the market, and it has and still is. Uh, we're seeing semiconductor manufacturing data supply centers, uh, we're seeing uh the AI uh infrastructure companies outperforming, and they are for maybe today, but outside of today, they certainly are. Uh that's it is reinforcing the view that the AI investment cycle remains strong, and I agree with that. And the uh long-term drivers of the market uh performance, uh, you know, despite the profit taking, still remains in the world of uh AI and their uh vested interest that way. Okay. Now, interest rates also play a key concern here. You know, we see uh investors uh spent much of the week processing ahead of the uh consumer price index report, and the uh beginning of uh the second quarter uh earnings seasons coming up. For example, uh corporate earnings uh this week were gonna be front and center, and we've got uh reports from major uh financial institutions like Bank of America, Citigroup, uh Goldman Sachs, Wells Fargo, Morgan Stanley. Uh they're gonna all announce uh earnings this week. We also have uh BlackRock, Johnson Johnson, and uh Taiwan Semiconductor, along with uh GE Aerospace and United Health. So we got a little bit of a mix there uh two coming in. We also know that interest rates are going to keep you know unchanged, or my belief that interest rates going forward are gonna be unchanged probably for a long duration. That's my feeling right now. Now, the Fed will keep ranging uh rates unchanged, but uh that's not gonna make President Trump very happy. Uh, he put a guy in there that hopefully would uh, I don't know, Kal Cow is probably a terrible word to use, but maybe that's what he thought he would do. Anyways, uh the new Fed chair, I don't think is going to override everybody in the uh uh on his on his uh board there to uh who is saying don't raise interest rates or lower interest rates, keep them the way they are. Uh now tactical investing, uh, you know, the perspective, you know, we always want to uh you know make sure that uh tactical investing you you want us focus on less on the daily headlines, okay, and more on whether new information changes things of the underlying investment thesis, right? Uh we want to look at uh last week's events and how that uh created volatility, but the they really didn't yet change fundamentally uh you know the long-term trends supporting AI, data centers, semiconductors, cybersecurity, and other selective uh energy companies. Okay, so we still have that going on. Um and I also speaking of AI, I've got a little uh tidbit story I want to share with you. So I'm reading a uh article in uh The Economist, and it brought up an interesting uh trend or uh view of AI and how AI works. Now, AI, uh I've said it before, is really only as good as the uh uh the individual uh, you know, how that's processed, how it's put together. Uh there's a bias, there's a cultural bias in AI based on what culture or what country is uh building it. And it it's a wonderful uh demonstration they did. They say uh so they took the uh problem. The problem is uh you're not getting along with your in-laws. Now, I know a lot of you probably don't have that problem. You get along with your in-laws, but if you didn't, then it went after AI to ask the question what do you do when you're not getting along with the in-laws? All right, so the US with ChatGPT, they said, don't try to win them over. All right, don't don't try to win them over and say, hey, you know, I'll give you a hundred bucks if you stop, you know, this crap or that crap. Right now, don't don't try to win them over. Um, and that was uh the US view. Now the Chinese, with their uh uh AI platform Deep Seek, uh the Chinese, which kind of like makes sense to me with the Chinese philosophy if you think about it, uh they say seek compromise. All right, seek compromise, and uh you know everybody will get along and it's uh kumbaya, right? Kumbaya. And uh then there's the French, they're uh Mistral, Mistral, M-I-S-T-R-A-L, I'm sure I'm not pronouncing that right, but mistral. And um the French are saying uh the conflicts with the in-laws can be draining and try journaling. So there they want you to journal away, write a book about it, and uh make it a bestseller. Okay. Uh so I found those that uh that comparison to be uh very interesting. I I liked it, and uh we're going to uh uh enjoy thinking about how and why we run into such uh uh biased uh uh by country, and also we also need to look at the uh situation with a lot of uh uh AI platforms and what they are given as information. Uh you know, there's two basic uh types of AI. There's the black box AI where they just work out of a given criteria area to work out of, and then the majority of them, they're they're the open AI where they uh you know search the internet throughout the world and uh they you they look for the answers and they're very quick at finding different things. But uh you're only as good as the data they're reading. So if nothing but crap data is out there on a topic, then you're gonna get nothing but crap. Um, that's my scientific uh view and viewpoint on that. My uh my uh professor thesis uh was based on that. Um it's crap. All right, um let's take a uh after taking a closer look now at uh uh one of the companies that I did recommend. So last week I recommended uh fuel cell energy symbol F C E L. And what brought it to my attention was uh between June 25th and June 30th, uh over just a five-day period of time, the stock gained more than 75%. Uh that exceptional price movement is uh what first brought the uh or first put uh uh fuel cell on my radar. Now, after taking a closer look though, I found several reasons for optimism. Now, mind you, I found reasons to be optimism. I was looking for reasons not to be optimistic because I felt for sure this is one of those uh crackpot, you know, buy this, it's gonna save the world kind of mentality with no basis to it. Well, this had some basis to it. So I looked at it, and uh fuel cell uh, you know, is expanding its manufacturing capacity, they're increasing their working capitals, so they uh investing in capital expenditures and positioning itself to uh support uh uh and anticipated growth. They've got uh a chain of uh you know uh capital working projects uh in front of them. Uh in particular, the company is focused on uh large-scale fuel cell development, so they're working on the uh uh forefront of uh the energy needed and the clean energy needed by a lot of these data centers, and supplying power solutions for a rapidly expanding data center is very good and smart. Um, now here's the rub to uh fund these uh initiatives, fuel cell uh raised a did a capital raise by issuing new equity new equity at $21 a share. While the equity offerings uh diluted existing shareholders and often uh pressured on stock uh in the short term, they can also strengthen the company's balance sheet and provide a resource needed to capitalize on their future opportunities. So they may uh short run not so good, but in the long run, you can pay great dividends. Uh one thing with capital appreciation through uh diluting your holdings, uh, that's fine. You're not paying an interest rate on any debt you've taken, uh, but you are diluted in any earnings you do make. Uh you know, the key point here is that uh fuel cell uh, you know, they've got a projected pipeline that continues to grow uh as uh demand for uh reliable power increases alongside the expansion of these AI-driven data centers. At the same time, the company's technological technology continues to advance. Uh we're hoping uh we're you know it's helping maintain position in a significant player in the fuel cell industry, kind of like uh you know, playing along with uh Bloom Energy, who is also another player we've seen do very well. Uh with all that in mind, though, like I said, uh you know, I'm reiterating my buy from uh last week, but I'm doing it with one important caveat. Fuel cell is a high-risk, highly volatile stock. Uh because of that, I recommend limiting any position to no more than 2% of your portfolio. Now, here's a good time to throw out my uh uh warnings, if you will, or uh disclosures. And that is uh any advice, opinions on this uh podcast are mine and mine alone. Uh any recommendations that uh come from this podcast, they're my my recommendations alone. So you should seek in every case though, uh consult your financial advisor to get their input on what is good for you. All right. So and the other thing I want to bring up today is uh get on uh you know uh my website, tacticalinvesting.com, tactical investment strategies.com, tactical investment strategies.com, and subscribe to these podcasts and subscribe to um you know the uh uh newsletters that I print. Uh if you do subscribe, I have got two wonderful workbook uh that you're uh you're going to enjoy helping you. One workbook is helping you uh work the process of uh tactical thinking and selecting an investment. Uh and then the other one is uh very helpful and uh very uh comprehensive, I should say, and help you with the estate and tax planning and your wealth management growth. And the second one is also once you finish, is excellent to share with your financial advisor. So just get on my website and uh take a look at uh uh my uh upcoming books and take a look at the uh subscribing and receive your two gifts. All right. Now, as a as always, I'm going to end with uh my favorite quote, and that is uh look to the skies, to the planets and the stars, for they remind you of what is possible. Yet keep your feet firmly on the earth, for it is here on this ground in this life that your journey unfolds and your greatest achievements are made. Hey, thanks a lot for listening. Y'all are great, and uh, we'll catch you next week. Every Tuesday, get a new version. Take care.