WEEKLY ROUNDUP

A 10-Square-Mile AI Superhub Is Rising in the Desert – and AGI Stocks Could Soar

Hello, Reader.

Standing at 2,717 feet (or 828 meters) tall, the Burj Khalifa skyscraper gives the United Arab Emirates (UAE) some bragging rights: It’s the tallest building in the world.

The towering structure is in Dubai, the most populated city in the UAE. Burj Khalifa was completed in 2010, and it attracts about 17 million tourists per year, according to the United Kingdom’s Institute of Civil Engineers.

But now the UAE might reach another world record.

And this time, it’s all about artificial intelligence.

On Friday, Bloomberg announced that OpenAI will help develop a massive new data center in the UAE. Tech giants Oracle Corp. (ORCL)and Nvidia Corp. (NVDA) will also support the project.

This new data center will cover 10 square miles and use as much power as around five nuclear reactors, making it potentially one of the largest data centers in the world.

The UAE site is a sister campus to OpenAI’s Texas-based Stargate Project, which was announced on the first day of President Donald Trump’s second term. That $500 billion initiative, led by OpenAI, Oracle Corp. (ORCL), and Japan’s SoftBank Group Corp. (SFTBY), was created to support AI development in the U.S.

But now, the developer of ChatGPT is offering the Middle East the infrastructure needed for AI services. Additionally, the UAE Stargate will also eventually allow for more AI collaboration between the U.S. and UAE.

Of course, this initiative isn’t just altruistic. It’s another step forward for OpenAI to achieve its company mission “to ensure that artificial general intelligence – AI systems that are generally smarter than humans – benefits all of humanity.”

To my sense, artificial general intelligence (AGI) went mainstream when OpenAI first partnered with Project Stargate. The company wrote in a January blog post announcing the initiative…

All of us look forward to continuing to build and develop AI – and in particular AGI –for the benefit of all of humanity. We believe that this new step is critical on the path and will enable creative people to figure out how to use AI to elevate humanity.

But what many folks don’t know is that the company had already started making strides in its mission…

On September 12, 2024, for example, the company quietly released its new o1 model. This system isn’t an AI successor model to ChatGPT or a precursor to GPT-5, the company’s next expected large language model (LLM).

Rather, it is a series of AI models designed to reason instead of recognize patterns. The models are specifically engineered for complex reasoning tasks, particularly in fields like science, math, and coding. They work through problems step by step, similar to human reasoning.

It’s like we’ve added a left brain to an already existing GPT right brain. And this complete system could be our first glimpse into AGI, which is a type of AI that possesses human-level intelligence.

Then last month, OpenAI released o3 and o4-mini, the latest in its o-series of models trained to think for longer before responding. OpenAI says that these are the smartest models it has released to date.

So, with the release of these new systems, OpenAI flipped a switch that could rapidly accelerate the timeline for AGI.

And with each new AI milestone, we’re getting ever closer.

Investors who are unprepared will miss the transformative opportunities that AGI will bring. But those who position themselves correctly could witness the greatest moneymaking opportunity in human history – with the possibility to surpass even the Internet Revolution.

That is why I just issued my “Final Warning.”

I started talking about AGI last August – right before OpenAI released its first o-series model. At the time, I warned that we were closer to AGI than most people think.

Back then, hardly anyone had heard of AGI. But now, the arrival of the technology is inevitable – and the mainstream media is starting to report about it.

That is why I put everything you need to know in my new The Road to AGI: Final Warning broadcast.

During this free broadcast, I also reveal one of my top-rated AGI-related stock picks – name and ticker symbol. It recently registered a 46% gain while the S&P 500 dropped 5%.

To learn even more about artificial general intelligence, be sure to check out what we covered here at Smart Money this past week…

Smart Money Roundup

Yet Another AGI Jolt Is Headed Our Way

Later this week, my colleague the legendary investor Louis Navellier plans to reveal new research that shows how President Donald Trump’s latest economic plans could unleash up to $10 trillion in new stimulus, create millions of high-paying jobs, and spark the next phase of a generational bull market.

In a brand-new presentation, Louis will lay out the three-pronged strategy the president is already rolling out. One of those prongs is what Louis calls “Tech Liberation,” and it could jolt AGI development… and the entire tech corner of the U.S. economy.

Louis tells me his system is flashing fresh signals on a new class of stocks poised to benefit from this three-pronged strategy. Watch this space for more on his new research later this week.

Regards,

Moody’s drops the government’s credit rating… housing is farther out of reach for lower-income Americans … the K-shaped economy widens … the stock market sector making outsized gains for the wealthy

On Friday, Moody’s Investors Service decided the U.S. government no longer deserves its Aaa credit rating and downgraded it by one degree to Aa1.

Moody’s was the last major credit rating agency to downgrade the U.S. credit rating. S&P was the first back in 2011. Fitch made the change after the debt ceiling battle in 2023.

Here’s Moody’s with its rationale:

We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.

Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher.

The U.S. fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.

Watch for the impact on the treasuries market

Yesterday, Treasury Secretary Scott Bessent tried to downplay the move, saying:

I think that Moody’s is a lagging indicator. I think that’s what everyone thinks of credit agencies.

But earlier in today’s session, bond yields jumped to reflect the new score. This is because “riskier” debt typically results in higher interest rates that investors require to compensate them for accepting greater risk.

The problem is that higher bond yields usually are bad for Wall Street (pressuring stock valuations in financial models) and Main Street (pressuring budgets via higher borrowing costs).

Earlier today, the 10-year treasury yield jumped to 4.56% (it’s easing slightly as I write), while the 30-day treasury yield climbed to 5.03%, one of its highest readings this year.

But legendary investor Louis Navellier isn’t concerned with the impact on treasuries. Part of the reason why is Bessent himself.

Let’s go to Louis’ Growth Investor Flash Alert this morning:

The main thing you should be aware of is that the treasury auctions are going much better under Scott Bessent than they were under Janet Yellen.

The reason we had almost a permanently inverted yield curve under Yellen is she had a hard time managing some of the long treasury auctions, and some of them didn’t go well.

That’s not happening under Scott Bessent. He knows what he’s doing, he knows how to manage the treasury auctions and that’s that.

We’ll track this and report back.

The split between the “haves” and “have nots” widens

Meanwhile, the National Association of Realtors (NAR) provided another illustration of the growing wealth gap last Thursday.

Here’s CNBC with the quick takeaway:

Higher-income households have near-total access to the housing market. Homebuyers earning $250,000 or more can afford at least 80% of home listings…

For those earning below $75,000 annually, the market has become even less supplied. A homebuyer with a salary of $50,000 could afford just 8.7% of available listings in March.

As you know, we’re still dealing with the fallout of the pandemic-fueled, home price explosion. Prices remain nearly 40% higher than before the pandemic (March 2019).

Lower-income Americans have felt this more acutely, as I’ve written about many times here in the Digest.

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But it isn’t just home buyers who feel the pinch

According to Zillow’s 2024 “Rental Market Report,” before the pandemic, average rent growth clocked in at about 4% yearly.

Here’s Zillow with where we are now:

The effects of the pandemic boom remain though, as rents now sit 10% above where they would have been if the 4% growth trend had persisted through the past 5 years.

As renters grappled with these rising costs, the income needed to afford rent increased to $78,592 in December…

The typical U.S. asking rent for single-family homes was $2,174 in December, an increase of 4.4% from last year and 40.6% over the past five years.

Meanwhile, housing/shelter costs aren’t the only source of financial pressure on lower-income Americans.

Student loan collections are adding to the financial strain

Two weeks ago, the U.S. Department of Education restarted collection efforts on defaulted student loans.

According to U.S. Secretary of Education Linda McMahon, millions of borrowers now face the possibility of a hit to their credit score, and possibly automatic wage garnishment.

Here’s CNBC with some of the numbers:

More than 42 million Americans hold student loans, and collectively, outstanding federal education debt exceeds $1.6 trillion.

More than 5 million borrowers are currently in default, and that total could swell to roughly 10 million borrowers within a few months, according to the Trump administration.

Such financial pressure is a contributor to last Friday’s dismal University of Michigan consumer sentiment survey.

The index fell to 50.8, down from 52.2 in April. This reading is the second-lowest level on record – trailing only June 2022.

But haven’t the data shown how resilient and strong the U.S. consumer has been – and still is?

In general, yes. But two things can be true at once…

The economic data may appear reasonably strong – and yet, simultaneously, lower-income Americans can be losing ground financially.

This apparent contradiction resolves when we dig into the data, beyond headline numbers.

What’s happening is the spending by the “haves” is more than offsetting the flat spending (and until recently, down spending) by the “have nots,” providing a rosy-yet-incomplete view of the economy.

Let’s jump to the Fed’s report, “A Better Way of Understanding the US Consumer: Decomposing Retail Spending by Household Income” from last fall:

For the past several months, retail sales estimates published by the Census Bureau have indicated that consumer demand for retail goods remains resilient.

However, published measures do not provide details on which consumers’ spending has remained resilient…

Consumer resilience has been driven by middle- and high-income households, while low-income households have pulled back since mid-2021 through mid-2023 and only recently recovered to their mid-2021 levels of real average retail spending.

Higher-income Americans are spending more because of the “wealth effect”

To make sure we’re all on the same page, the wealth effect is the dynamic wherein spending behavior changes in response to how individuals perceive their wealth, usually due to fluctuations in asset values.

Basically, the richer we feel on paper, the more we spend.

Zeroing in on stocks, according to Fed data, the top 10% of Americans hold about 93% of all stock wealth. So, with stocks now back to within throwing distance of all-time highs, the wealth effect for these households is raging.

Let’s go to Fox Business:

America’s wealthiest households are accounting for a growing share of consumer spending as market-driven gains in their net worth fuel a wealth effect, a new analysis by Moody’s Analytics finds.

The report authored by Moody’s Analytics chief economist Mark Zandi found that the top 10% of U.S. households in terms of earnings, defined as making about $250,000 or higher, account for 49.7% of consumer spending – a record since at least 1989, according to the analysis…

These findings come as less affluent households continue to struggle with the effects of persistent inflation, as well as high interest rates that have hit the housing market.

This is our K-shaped economy in action.

Digging in even further, how are these “haves” generating so much wealth in the stock market?

I suspect you already know the answer…

Tech/AI.

For context, below, you can see how AIQ – the Global X Artificial Intelligence & Technology ETF – is outpacing the S&P by about 50% over the last two years.

But AIQ is a broad ETF containing 86 large- and mega-cap stocks. So, its overall returns are weighed down by some of the laggards.

To illustrate how exceptional specific AI winners have performed, below are the two-year returns for a handful of leaders from a variety of sectors.

These companies either make AI possible for other companies or are effectively leveraging AI in their own operations:

• SoundHound AI (SOUN)… +261%
• Sezzle (SEZL)… +595%
• Palantir (PLTR)… +979%
• GeneDx Holdings (WGS)… +1,030%
• Applovin (APP)… +1,360%

(Disclosure: I own APP.)

For perspective, consider some of the two-year returns for the following well-known stocks that have struggled for a variety of reasons:

• Lululemon (LULU)… -14%
• Starbucks (SBUX)… -17%
• Hershey Foods (HSY)… -37%
• Nike (NKE)… -46%
• Dollar Tree (DLTR)… -46%
• Este Lauder (EL)… -66%

Not only do we have K-shaped economy, we have a K-shaped stock market.

Our macro expert Eric Fry has been tracking this divergence…as well as one of the greatest contributors to it

From Eric:

Artificial intelligence is slashing the world of commerce into two distinct groups: the AI appliers and the AI victims.

The companies that hope to survive and thrive must adopt and integrate AI technologies as quickly as possible.

Those that fail to do so will perish… and time is of the essence, especially as we get closer and closer to achieving artificial general intelligence (AGI)…

Every company on the planet now faces the Darwinian prospect to adapt or perish.

Now, there are many ways to invest in AGI. The most obvious is to buy shares of companies that are providing key parts of the infrastructure that will accelerate AI technology toward AGI. Think Nvidia.

While Eric believes there’s plenty of money still to be made in this type of stock, he suggests investors widen their perspectives…

Look for companies that have been beaten down and forgotten about – but are now quietly finding ways to leverage AI to reduce costs, increase revenues, and gain market momentum.

Eric calls these hidden gems “Stealth AGI” companies:

[These Stealth AGI picks] industries include shipping and logistics… beauty, fashion, and wellness… and food and beverage.

These are companies that might even be considered a little boring, especially compared to headline-grabbers like Nvidia.

However, these less-exciting names will adopt AI and AGI in a bid to become more profitable, often by orders of magnitude.

Eric has put his favorite stealth AGI pick in one of his three new special reports. He discusses it more in his new special broadcast, The Road to AGI: The Final Warning.

Here’s he is with additional details about this free broadcast:

I reveal more about my AGI blueprint, including details on critical stocks to avoid or sell immediately before they collapse.

Plus, I’ll show you one of my top-rated AGI-related stock picks – name and ticker symbol. It recently registered a 46% gain while the S&P 500 dropped 5%…

The stakes have never been higher because the pace of change is more rapid than anyone could have imagined. The companies that adapt quickly will be the new kings of the market.

Those that refuse to adapt, or simply are slow to change, will go the way of the dodo bird.

Circling back to the top of this Digest…

A striking parallel is emerging…

Just as lower-income Americans are being squeezed by rising rents and stagnant wages, companies slow to adopt AI are falling behind.

Meanwhile, higher-income Americans – buoyed by asset appreciation and the wealth effect – continue to spend, and AI-driven firms are capturing outsized growth, investor attention, and market returns.

So, we have two widening gaps here. And they both point toward the same takeaway…

Financial and technological advantages are compounding at the very top.

The causes are complex and varied. But both trends reflect a system rewarding those positioned to leverage innovation, whether in income or AI/tech infrastructure. Those who can’t are increasingly left behind.

This is a divergence that’s critical to monitor from both a societal stability and personal wealth perspective. All signs point toward its acceleration.

Here’s the link again for Eric’s research video on how he’s preparing.

Have a good evening,

Jeff Remsburg