A Dickensian Market

“It was the best of times, it was the worst of times.” The memorable beginning of A Tale of Two Cities aptly describes investment results for the third quarter. In the U.S., large company stocks reached record highs while small company stocks fell sharply. Rising interest rates created the best income opportunities for investors in decades, but stung holders of long-term bonds. All this occurred amid resilient economic growth in America, despite diplomatic tensions, high gas prices, and vexing tariff uncertainties. Meanwhile, foreign stock markets held up near record highs, notwithstanding rising interest rates and political turmoil in many countries.

Unprecedented Scale

Every few decades, a breakthrough technology reshapes the global economy. Economists call these innovations General-Purpose Technologies (GPTs). Past examples include the steam engine, railroads, electricity, the internal combustion engine, and the internet. Artificial intelligence (AI) is the next GPT.
The extraordinary scale of AI can be shown by comparison to other transformative endeavors.

• In inflation-adjusted dollars, the Apollo space program, which climaxed with the 1969 moon landing, cost approximately $309 billion.
• The Eisenhower Interstate Highway System, a network of over 50,000 miles built over decades, had a total estimated cost of $600 billion, adjusted for inflation.
• The late-1990s internet buildout cost roughly $1 trillion, adjusted for inflation.
• By comparison, just four companies—Alphabet, Amazon, Meta Platforms, and Microsoft—have spent nearly $1.6 trillion on AI infrastructure since 2022 and are projected to spend $1 trillion more in 2027.

Fear from Within

AI spending on data centers, computing hardware, and networks is estimated to account for nearly one-third of U.S. economic growth in 2026. This impact may be understated given additional benefits to supporting companies in sectors such as utilities, industrials, and financial services. Yet this transformation has an unusual feature: some of its leading developers openly fear the consequences of misuse. Unlike earlier industrial pioneers, AI leaders are asking governments for regulation and warning of existential risks. Federal action may be delayed by competition with China, but local resistance to data centers is already apparent. In time, AI will require federal oversight, perhaps comparable to the role of the FDA in health care or the USDA in foods. Because increased regulation could slow growth, it will be an evolving risk factor for investors.

Creative Financing

The AI boom has also revived vendor financing: large technology companies are helping smaller cloud developers and AI startups buy semiconductors and computing infrastructure they otherwise could not afford. These structures sustain demand but create circular risk. If customers fail to generate adequate revenue and profits, repayment problems flow back to the technology giants. Because some obligations are not disclosed in sponsors’ financial reports, credulous investors could be surprised by fallout from any slowdown in demand.

Buyer Beware

SpaceX’s 2026 initial public offering (IPO) may soon be followed by stock offerings from two major AI companies. Anthropic,
known for Claude, is expected to sell stock later this year. OpenAI, known for ChatGPT, is planning for an IPO sometime in
2027. Bartlett believes investors should approach IPOs with curiosity and skepticism. The essence of an IPO is that company
founders and leaders are selling. They wouldn’t do this if they believed the stock was underpriced. Many IPOs occur when
enthusiasm is very high and valuations are ambitious. For example, SpaceX’s prospectus described a $28.5 trillion total
addressable market. This is an impressive ambition but patently unrealistic because it is almost one-quarter of the global
economy! Anthropic and OpenAI may be offered at stock prices based on nearly 30 times estimated revenue, versus valuations
of less than 10 times projected revenue for established, profitable leaders such as Alphabet and Amazon. These valuation gaps
warrant caution.

Thoughtfully In

Bartlett is fond of saying long-term investing is a marathon, not a sprint. History reminds us that the most accomplished
marathoners—Warren Buffett, for example—have been distinguished for resilience in difficult markets as much as success in
good times. It is good to bear this in mind now, with stocks and the economy buoyed by the AI boom. We believe AI is
historically transformative and economically powerful. However, it will need thoughtful regulation, relies on creative financial
structures that could magnify a slowdown, and shows signs of excessive optimism. Although going “all in” on AI has rewarded
the most aggressive investors so far, we believe being “thoughtfully in” is wiser. Our approach combines healthy technology
exposure with diversification across other economic sectors, quality bonds, select alternative investments, and cash. These
safeguards in balanced investing can help turn inevitable selloffs into buying opportunities rather than threats. By doing so,
they help us keep your portfolio and financial plan “built to last.”

Concluding Comments

We are grateful for your continued trust and loyalty. Our steadily growing client base is one reason Bartlett was included again
in Barron’s annual list of America’s Top 100 Registered Investment Advisors. Please refer us to family, friends, and associates
who could benefit from our financial planning and investment management services.

DISCLOSURE:
This material provided by Bartlett Wealth Management (“Bartlett”) is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Opinions expressed by Bartlett are based on economic or market conditions at the time this material was written; actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Bartlett, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.