Beware These Beloved Stocks

• The five leading 'hyper-scaler' data center operators have invested $1.5 trillion over the last five years, with spending accelerating and turning AI from a growth driver into a capital-intensive cost center
• Copper is projected to reach at least $8 per pound in 2026, with demand expected to surge 50% by 2040 while supply faces deficits of 150,000-400,000 tonnes and a potential 30% supply gap by 2035
• European stocks are forecasted to outperform U.S. markets in 2026 due to valuations at substantial discounts and Europe's shift toward intra-European trade and supply-chain self-reliance amid geopolitical uncertainty

Market Summary: "Top Dog" Stocks Face Underperformance Risk

Key Investment Thesis

Research by billionaire investor Rob Arnott warns that market-cap leaders historically underperform after reaching dominance, with sector leaders underperforming peers by 300-400 basis points annually over the following decade. This pattern now threatens the Magnificent Seven tech stocks.

Critical Financial Developments

Mag 7 Deterioration:

• For the first time since 2022, most Mag 7 stocks underperformed the S&P 500 in 2024
• Combined net cash position of Amazon, Microsoft, Apple, Meta, and Alphabet collapsed from ~$300 billion (2017) to below zero today
• Five leading data center operators invested $1.5 trillion over the past five years, with spending accelerating
• AI infrastructure becoming a capital-intensive cost center rather than profit driver

Alternative Investment Opportunities

Copper:

• Price target: $8.00/pound in 2026
• Expected refined-copper deficit of 150,000-400,000 tonnes next year
• Demand projected to surge 50% by 2040, with supply facing 30% gap by 2035
• Recommended play: Sprott Copper Miners ETF (COPP)

European Equities:

• Trading at substantial discount to U.S. stocks despite improving fundamentals
• Pivot toward intra-European trade creating reliability premium
• Recommended exposure: Vanguard FTSE Europe ETF (VGK)

Trump's Genesis Mission:

• $500 billion government program launched November 24th
• 52 companies named for AI, quantum computing, and advanced semiconductors development
• Hard deadlines beginning February 22nd

Market Implication

Investors should reconsider concentration in mega-cap tech stocks as diminishing cash flows and elevated valuations signal potential sustained underperformance ahead.