'I think gold will remain strong but it obviously will have a lot of volatility': Larson

Market Rebound, AI ROI, and Economic Scarcity: Insights from Chad Larson

Key Concepts:

• TAM (Total Addressable Market): The total market demand for a product or service.
• ROI (Return on Investment): The profitability of an investment.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets.
• AI Tax: Increased costs associated with the components and infrastructure required for Artificial Intelligence development and implementation.
• Litmus Test: A crucial indicator or test of a particular situation or idea.
• Durability of Consumer Demand: The ability of consumer spending to remain consistent despite economic fluctuations.

I. Market Sentiment & The Shift from TAM to ROI

The market is currently experiencing a rally following last week’s sell-off, particularly triggered by Microsoft’s over 10% drop after earnings. However, Chad Larson, Senior Portfolio Manager at MLDD Wealth, emphasizes that the sustainability of this rebound hinges on a shift in investor focus. The market is transitioning from prioritizing the sheer size of the Total Addressable Market (TAM) for AI – the potential for massive growth – to demanding demonstrable Return on Investment (ROI). He describes the previous environment as one of “infinite TAM,” where the focus was on potential, and the current one as a “show me the money” phase. This structural change is evidenced by Nvidia potentially pausing a $100 billion deal with OpenAI, indicating a more “calmness or pragmatism” returning to the market.

II. AI Spending & Potential Overspending Concerns (2026 Outlook)

Larson expresses concern about potential overspending on AI by major tech companies like Meta, Nvidia, and Google. Last year saw approximately $390 billion in Capex (Capital Expenditure) – equivalent to government stimulus – directed towards these investments. While acknowledging the ongoing “party” of AI development, he anticipates a period where companies will be scrutinized for their ability to translate investment into tangible cash flow. He highlights the importance of the “durability of consumer demand” and the emerging “AI tax” – rising costs of components like memory – as key factors influencing future success.

III. Scarcity of Resources & the “AI Tax”

Beyond technological advancements, Larson stresses the critical role of resource scarcity. He argues that the AI boom is fundamentally an “industrial boom dressed up with a tech label.” The increasing cost of essential materials – copper, critical minerals, rare earth metals – and the infrastructure required to support AI (data distribution, power lines) will become increasingly significant. He commends Donald Trump’s focus on these scarcity issues, noting that the challenge extends beyond technology itself. Apple’s warning of potential price increases exemplifies this “AI tax,” driven by rising input costs due to increased demand. He identifies power as a potential “choke point” in the next phase of AI development, highlighting the electrification story and the demand for rare earth metals.

IV. Palantir as a Gauge of Commercial AI Demand

Palantir’s upcoming earnings report is presented as a crucial “litmus test” for the current AI narrative. The company’s stock is heavily influenced by momentum and excitement, but Larson emphasizes the need to see increased order books, recurring demand, and evidence of scalability to confirm whether the hype surrounding Palantir is justified. The key question is whether the consumer demand exists to support the investment and backlog.

V. Apple’s Price Increases & Contributing Factors

Regarding Apple’s anticipated price increases, Larson attributes this to a combination of factors: the rising cost of AI-related components, tariff implications, and basic supply and demand dynamics. As more companies compete for the same resources, input costs increase, and these costs are inevitably passed on to consumers. He questions the “durability” of consumer willingness to absorb these increased costs for hardware access to software.

VI. Consumer Durability & the “Show Me” Market

Larson believes consumers will remain relatively “durable” in their spending, noting that smartphones have become “critical infrastructure” in modern life. However, he reiterates the market’s shift towards demanding tangible results. Investors are now asking, “When does the investment turn into real cash flow and earnings?” He uses Microsoft as an example, stating the market needs assurance that investments will yield economic returns within a reasonable timeframe.

VII. Gold Price Volatility & Structural Strength

The recent plunge in gold prices (the largest since 1983) is addressed. While acknowledging a personal exposure to gold and a negative impact from Friday’s decline, Larson maintains a structurally positive outlook. He emphasizes the importance of narrative – “he or she who tells the best story wins” – and suggests the price correction was a result of overextended speculation and margin calls. He draws an analogy to the oil market, stating that even a correction from $150 to $130 oil wouldn’t significantly impact oil companies. He believes gold will remain strong due to geopolitical factors, debasement trade against a weaker dollar, and potential shifts in Federal Reserve policy (mentioning a potential hawkish Fed chair nominee, Mr. Worsh). He cautions against drawing definitive conclusions from a single day’s trading, emphasizing the importance of assessing the underlying cycle and structure.

Notable Quote:

“We’re all kind of, you know, drinking the Kool-Aid, so to speak.” – Chad Larson, referring to the widespread enthusiasm surrounding AI investments.

Synthesis/Conclusion:

The market is undergoing a critical transition, moving beyond the initial excitement surrounding AI’s potential and demanding concrete evidence of ROI. Resource scarcity, particularly concerning critical minerals and power infrastructure, will play an increasingly important role alongside technological innovation. Companies like Palantir will be closely watched as indicators of genuine commercial AI demand, and consumers’ willingness to absorb price increases will be a key determinant of future success. While volatility is expected, Larson maintains a cautiously optimistic outlook, emphasizing the importance of focusing on long-term structural trends rather than short-term market fluctuations.