Appearing on a Global X webinar on 21 October, the firm’s head of investment strategy, Scott Helfstein, said the US economy remains in the nascent stages of the automation age.
“The innovation boom is alive and well,” he said.
Despite outward appearances, he argued that the US market is likely “fairly priced”.
For all the discussions about an AI bubble, he identified significant growth potential in the automation age – the current era characterised by the combination of AI for cognitive tasks and robotics for physical functions.
He highlighted that while AI receives a lot of air time, the US economy’s innovation narrative encompasses much more than this such as robotics and unexpected technology applications in sectors like construction and utilities.
As an example, he noted the New York Power Authority’s use of drones to inspect approximately 5,500 miles of power lines, extending from New York to Colorado which was a task previously carried out by human personnel.
Moreover, while the substantial capital expenditure by US tech companies in data centres and other areas has been longstanding – now projected to reach $250 billion this year – Global X does not see this slowing down, at least not in the near future.
“We are really optimistic about what we’re going to see,” he told the panel.
In particular, he pointed to how many of these companies are investing to embed themselves within the physical infrastructure of the automation age as a long-term goal, positioning themselves more as essential utilities than the leading innovators of the next era.
Meanwhile, he downplayed concerns about market concentration in tech and AI, stressing that the broader automation age could uplift other sectors due to higher energy demands
“I encourage people not just to think about the innovation boom and semiconductors, but really, to think about an entire AI ecosystem that is hardware, software, data and energy,” he said.
For example, Helfstein highlighted that tech companies such as Meta and Microsoft are exploring nuclear energy. Microsoft, for instance, has recently collaborated with power plant operator Constellation Energy on the potential revival of a nuclear reactor.
He also acknowledged that while market breadth beyond the Magnificent Seven tech stocks might take time to develop, economic breadth is a tangible reality, already evident in improved profit margins in traditional sectors like utilities and construction.
Notably, utilities have doubled their profit margins in the last 10 years from about 6 to 12 per cent – hitting a record 13 per cent last quarter. Similarly, industrials have doubled their profit margins over the past decade.
ClearBridge Investments echoed this sentiment last month, identifying listed utilities as central to the current AI boom, which is being driven by new policies. In particular, it highlighted new US legislation and changing fiscal priorities in Europe that are reshaping infrastructure funding and significantly impacting listed infrastructure.
Economic outlook
Despite ongoing challenges and contradictions within the US economy, Helfstein maintained that it ultimately remains “a good news story”, defying slowdown predictions since 2022 and maintaining nominal (gross domestic product) GDP consistently around 4.5 per cent and a 6 per cent average in recent years.
Even given recent tariff discussions, he argued that the economy is generally “humming along”, with strengths across labour, leverage and liquidity measures.
“A 0.2 per cent drag on GDP [projected tariff effect] is not irrelevant, but it’s not going to stop the economy in its tracks.”
Looking forward, Helfstein conceded that with cash flow growth for 2025–26 currently north of 25 per cent, that figure is looking “a little high”.
“If we were to say there is any weakness in the armour that I’m about to lay out, it’s probably around that number,” he said.
At the same time, he maintained that the expected cash flow growth of around 15 per cent a year for the next few years is “not entirely unreasonable”.
Meanwhile, at 9.5 to almost 10 per cent, he said the weighted average cost of capital for the US market is reasonably high, while the long-term growth rate is running at about 3.5 to 4 per cent.
However, with GDP growth currently sitting at about 6 per cent, he said as long as this figure stays at or above 4 per cent – even given the high cost of capital – stocks still seem reasonably priced.
He even contended that if the cost of capital starts coming down meaningfully, which is possible given the Fed’s recent rate cut pivot, stocks could “actually start to look cheap”.
“If we look at relative value of opportunities in the US versus elsewhere, on the surface, the US looks expensive, but given the margins and the earning stability, the consistency in the innovation that we’ve seen in the US economy, we’re reasonably optimistic,” he said.
