Who's leading and who's falling behind on the AI landscape?

Key Concepts

• Tariffs & Trade Policy: Impact of Trump administration’s trade policies on market volatility and earnings.
• GDP Growth: Forecasts for US economic growth in 2025 & 2026 (2% real GDP in 2025, 4-4.5% nominal GDP in 2026).
• Labor Market: Cooling labor market and its implications for Federal Reserve interest rate policy.
• Consumer Spending: Shift in consumer behavior towards value-oriented products and the impact of tariffs on consumer goods.
• AI Capital Expenditure (Capex): Investment in Artificial Intelligence and its impact on tech companies and enterprise adoption.
• AI Winners & Losers: Identifying companies poised to benefit or be disrupted by AI advancements.
• Financial Sector Opportunities: Focus on rating agencies, data analytics, and payment processing (Visa) within the financial sector.

Market Rebound & Economic Outlook

The US markets experienced a significant rebound following a decline triggered by concerns over new European tariffs and the Greenland conflict. Tim Chub, Chief Investment Officer at Gerard, attributes this recovery to a pattern observed throughout 2025: the Trump administration often employs tariff threats as leverage in negotiations. He notes that markets initially sold off due to uncertainty surrounding the EU trade path but found relief as no substantial earnings impact was immediately apparent.

Chub anticipates the US economy will settle into a trend growth rate, projecting a 2% real GDP for 2025 and a more robust 4-4.5% nominal GDP growth in 2026. This growth is expected to create a favorable environment for stocks, supported by anticipated earnings growth. However, he cautions that a cooling, but not cracking, labor market will likely provide the Federal Reserve with justification to continue cutting interest rates later in the year. He describes the labor market as “nonlinear,” emphasizing the need for close monitoring throughout the year.

Earnings Season Insights & Consumer Behavior

Early indications from earnings season suggest a shift in US consumer spending habits. Consumers are becoming “a bit more discerning” with their money, opting for value-oriented products and off-brand alternatives. This trend is evident in reports from companies like McCormick (spices) and retailers such as Walmart and Target, where even higher-income earners are demonstrating a preference for value. Chub highlights that these companies are facing challenges from tariffs on both the top and bottom lines due to consumer fatigue with price increases.

Big Tech & AI Investment

Regarding the upcoming earnings reports from big tech companies, Chub believes the primary focus will be on AI monetization and capital expenditure (capex) related to AI. He notes that Meta has already demonstrated a return on investment (ROI) for advertisers through early AI spending. For the broader market, the key metric is the AI capex spend. He anticipates a growing theme throughout the year will be enterprise adoption of generative AI, moving beyond initial data security and rollout concerns. Software-as-a-Service (SaaS) companies like ServiceNow, with their vertical SaaS model, are expected to benefit from monetizing AI investments.

Chub identifies a divergence between AI winners and losers. While companies like Microsoft, unfairly impacted by the recent selloff, are well-positioned, others face “terminal risk” as AI potentially disrupts their core products. He suggests a shift towards metered rating and consumption-based pricing models, contrasting with the traditional per-seat licensing. He believes mission-critical software providers like Salesforce and ServiceNow will remain resilient despite the selloff, presenting opportunities for investors.

Sector Preferences & Investment Strategy

Chub expresses interest in the financial sector, particularly rating agencies and data analytics businesses with AI-beneficiary elements. He cites Moody’s and S&P Global as examples, anticipating strong debt issuance in the first and second quarters, driven by both investment grade and high-yield markets. He emphasizes their pricing power and high incremental margins, justifying higher multiples. He also highlights Visa as an attractive investment within the payment processing sector, despite recent credit card-related headlines.

Earlier in 2025, Gerard reduced its exposure to banks due to yield curve pricing. However, Chub anticipates continued strong deal activity in the first half of the year. He emphasizes the need for investors to be “more picky” and identifies companies currently priced like losers that possess significant long-term potential.

Notable Quotes

• “...markets had sold off…as a result of, you know, obviously that uncertainty and and the threats especially related to the European Union and the trade path there.” – Tim Chub, describing the initial market reaction to tariff threats.
• “...you're really seeing the US consumer you know start to um be a bit more discerning with how they're spending their money.” – Tim Chub, on the changing consumer spending habits.
• “...companies like Microsoft that are going to be really well positioned that have sort of been the software names, you know, babies thrown out with the bathwater, if you will.” – Tim Chub, on undervalued AI beneficiaries.

Technical Terms & Concepts

• Nominal GDP: Gross Domestic Product measured at current market prices.
• Real GDP: Gross Domestic Product adjusted for inflation.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, and equipment.
• SaaS (Software as a Service): A software distribution model where a third-party provider hosts applications and makes them available to customers over the Internet.
• Incremental Margin: The additional profit generated from each additional dollar of revenue.
• Yield Curve: A line that plots the interest rates (yields) of bonds having equal credit quality but differing maturity dates.

Logical Connections

The discussion flows logically from the immediate market reaction to geopolitical events (tariffs, Greenland) to a broader economic outlook. This then transitions into a detailed analysis of earnings season, consumer behavior, and the impact of AI on various sectors. The sector preferences are presented as a direct result of the identified economic trends and investment opportunities.

Conclusion

The interview with Tim Chub paints a picture of cautious optimism. While acknowledging short-term market volatility driven by geopolitical factors, he anticipates solid economic growth in 2026, fueled by AI investment and enterprise adoption. The key takeaway is the need for selective investment, focusing on companies poised to benefit from long-term trends like AI and those currently undervalued despite strong fundamentals. The shift in consumer spending towards value and the cooling labor market are critical factors to monitor as the year progresses.