RJ Hamster
World War-Level AI Spending Is Coming
World War-Level AI Spending Is Coming
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- The latest AI casualty: your money manager
- How the U.S. can get to 15% GDP
- Our AI algorithm is bearish on these stocks
A new week, a new casualty in the AI megatrend…
Last week, we wrote you about how AI was eating the world and software-as-a-service (SaaS) companies were the appetizer.
AI tools like Anthropic’s Claude Code can now write large chunks of computer code by themselves – and fix mistakes along the way.
And newer tools like OpenClaw raise the stakes. They let companies create AI “agents” – software helpers that not only chat with you, but also actually carry out assignments within your systems.
The sort of back-office work that once required a salaried employee can now be handled by a set of prompts to an AI model.
And so far this year, the iShares Expanded Tech-Software Sector ETF (IGV) is down nearly 17%.
This week, AI has found the second course in its market-spanning feast: financial stocks.
A new AI tool from private tech firm Altruist is aimed squarely at financial advisers. It promises to help manage client accounts, draft portfolio recommendations, and flag tax strategies – tasks that typically justify hefty advisory fees.
Investors aren’t waiting around to see how this plays out. Yesterday, several prominent wealth management stocks took a bath:
- Broker, banker, and money manager Charles Schwab (SCHW) fell 7.4%.
- Wealth manager and investment bank Raymond James Financial (RJF) fell 8.7%.
- Financial planning firm Ameriprise Financial (AMP) fell 6.2%.
There’s a bit of irony here.
At TradeSmith, we’ve long argued that individual investors – armed with better data and better tools, including AI – probably don’t need a financial advisor as much as they once did.
But AI tools like these don’t necessarily mean traditional wealth managers are doomed. And it doesn’t make them obsolete overnight.
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Our Short-Term Health indicator says buy the dip…
It shows you whether any stock you own – or are thinking of buying – is in a strong short-term uptrend. And it works on a simple traffic-light system.
Green is a buy. Yellow is a hold. And red is a sell.
And when it comes to SCHW, RJF, and AMP, Short-Term Health is telling us to buy the dip.
Here’s the chart for SCHW, with its Short-Term Health status on the bottom in Green, Yellow, and Red.
See that green arrow near the middle of the chart? That’s the recent Short-Term Health signal. It fired on Dec. 19, before the stock rallied as much as 9% in a little over a month.
Yesterday’s disruption brought the stock back to where it was when the signal fired, but it’s still in the Green Zone as I write.
It’s the same story with RJF:
RJF saw its Short-Term Health Green signal on Jan. 2. Since then, the stock has rallied as much as 6%. And just like SCHW, it’s still in the Green, despite quickly giving those gains back.
And finally, let’s look at AMP:
AMP also fired a Short-Term Health Green signal on Jan. 2. And since then, the stock has surged as much as 10% before the recent rout.
In other news, a “wartime” spending effort may be on the horizon…
On Monday, President Trump set a high bar for incoming Fed chair Kevin Warsh.
Speaking on Fox Business with Larry Kudlow, he said, “If he does the job that he’s capable … then we can grow at 15%. I think more than that.”
That’s more than triple the current annual growth rate of 4.3%.
We can chalk this up to usual Trump Art-of-the-Dealmaking – the first ask is aimed toward the stars so the final figure can land on the moon.
But let’s humor the president. How would the U.S. economy get to 15% annual growth?
Well, the best way to get an idea is to look at the times when the U.S. economy did grow this fast in the past.
And the only time it’s happened was during World War II.
U.S. GDP grew 17.7% in 1941, 18.9% in 1942, and 17% in 1943 as the U.S. government spent massively on the war effort.
So for the economy to grow this fast, it would require massive amounts of government spending. And assuming there’s no World War III, the only reason for that level of spending is building out the nation’s AI infrastructure.
How do we as investors get on the right side of that spending?
One simple move is to buy the best-of-the-best AI stocks. And an easy way to find them is using Jason Bodner’s Quantum Score.
After working for years on Wall Street brokering deals for major institutions, he learned the two most critical elements of a market-beating stock:
- Superior fundamentals:companies that are growing their revenues, earnings, and profit margins at a fast pace
- Strong price action: stocks in strong uptrends that are outpacing the broad market’s climb, alongside unusually large buying from big institutional investors
He took these two factors and quantified them into the Fundamental Score and the Technical Score. These can tell you in an instant if a stock is a market leader on either factor.
Then, using a proprietary algorithm, he combined them to form the overall Quantum Score.
If the score is below 75, it’s not a buy. If it’s above 75, it should be at the top of your watchlist.
As part of Jason’s service, he automatically ranks the top 10 AI stocks by Quantum Score in our TradeSmith Finance platform. Here are the rankings as of yesterday’s market close:
What’s noteworthy about the list above is how every stock except Alphabet (GOOGL) – which we highlighted yesterday – is a company that primarily deals with physical hardware. Most are semiconductor stocks, while General Dynamics (GD) is a defense and aerospace company.
And even Google makes hardware in the form of its Tensor Processing Unit (TPU) AI chips and quantum computers.
What this list tells us is that if you are a company that deals with digital goods – like software – you’d better be one of the most important… and you’d better have a hardware division backing you up.
For now, these are the best AI stocks to own based on Jason’s score.
Let’s wrap with a look at what our AI is most bearish on…
If you’ve followed TradeSmith for the past few years, you know we’ve been heavily investing in AI in our own business.
The cornerstone of this effort is Predictive Alpha, our AI model that forecasts stock price moves up to 21 trading days out.
Think of Predictive Alpha as the Large Numbers Model to ChatGPT’s Large Language Model. Instead of using advanced AI algorithms to predict the next word in a sequence, Predictive Alpha forecasts the next number.
We regularly track the most bullish and bearish Predictive Alpha forecasts on our analytics platform, TradeSmith Finance. Here are the current top five bearish trades…
The stocks are Canadian IT consulting and software firm CGI (GIB), power systems company American Superconductor (AMSC), digital payments giant PayPal (PYPL), cloud computing and enterprise software firm Appian (APPN), and data analytics and cloud monitoring company Datadog (DDOG).
Save for American Superconductor (AMSC), all of these stocks are software firms. Predictive Alpha is forecasting more pain ahead for these AI-threatened companies.
And unlike the financial firms we talked about earlier, stocks like these have been trading badly for months. Buying downtrends is never a good idea.
Steer clear of the stocks on this list… and stick instead with the top AI stocks we shared earlier.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
Disclosure: Michael Salvatore holds shares of Google (GOOGL) at the time of this writing.
P.S. Quick reminder: I’m sitting down with Lucas Downey tomorrow to test out the pre-beta version of our Signals software. And we need your help.
We’ve already received dozens of stock ideas from your fellow readers, and a few of them are flashing trade signals in our system right now.
So if you want the chance at having us test out your idea, write in to feedback@TradeSmithDaily.combefore 4 p.m. ET today.
