You say you want a Revolution...
2025 has not been like 2024. We've highlighted the transition in policies and changing market behavior. What may be most interesting is the AI rotation below the headline index level. Let's dig in...
While the main Indexes themselves have made limited gains since the election and essentially no gains over the past two months, underneath the surface, there have been significant rotations and opportunities.
Whereas 2024 was initially about 2023’s AI semiconductor theme, in the second half of the year, the theme transitioned to the data center and power generation.
The AI investment environment in 2025 has reflected another transition.
2025 has been about the application and physical layers of AI including software, autonomous vehicles and robotics. (see chart 2).
These software and physical applications of AI, are entering established markets - transportation, manufacturing, farming, mining, defense, communications - using new technologies.
Rather than creating new industries, they are enhancing existing ones and either making incumbents more efficient or displacing them altogether.
We’ve been writing about this theme for some time; however, with last weeks announcement from Meta that it is developing a new division to focus on humanoid robots (press release here) and having received an offer this morning to invest in Figure AI’s (another robotics company) series B round, I wanted to highlight this theme again.
While hyper-scalers are funding data centers (see chart 4 here), they are also investing heavily into robotics that will be powered by AI.
Microsoft and Open AI are investors in Figure AI; Meta’s robots will be powered by its Llama AI engine; Google is the leader in autonomous vehicles with Waymo and at one time it owned Boston Dynamics; Apple is working on robotics; and Tesla has its Optimus series (see here).
(If you are from my generation, it is easy to remember friendly, docile helper robots like C3PO or R2-D2 from Star Wars, but you may also recall a less friendly outcome in 2001: A Space Odyssey. For a somewhat contemporary take, I highly recommend Ex-Machina).
In mid-October (here), we wrote: “We see AI - from infrastructure to the application layer - as a durable investment theme for long-term investors.” (see chart 2, below).
We continue to believe that the best way to participate in this theme is through a combination of public equities, venture capital (see here) and direct investments.
As we wrote in the mid-October piece:
“In our view, over the next five to ten years, similar to the mobile technology boom, there will be several companies that become household names that are unknown today.”
“You say you want a Revolution, Well, you know,
We all wanna change the world.” The Beatles
The picture below is of an actual Figure AI robot.
1. The S&P 500: The Real Action Is Under the Surface
Source: TradingView. Through year-to-date 2025.
The chart above shows the S&P 500 since 2021.
It is continuing to trade in the neighborhood of 6050 where it has essentially been since early December.
In our view, the absence of weakness - despite what could be perceived as negative news - is potentially a sign of strength.
While the Index has moved sideways, under the surface, there have been rotations.
Semiconductors, the earlies beneficiaries of AI investment have been underperforming, while robotics companies have been outperforming.
While we are watching the S&P 500 for clues about overall market health, we are continuing to look for, and identify, more targeted opportunities.
(This is not a recommendation to buy or sell any security and is not investment advice. Past performance is not indicative of future results. Please do your own research and due diligence).
2. The Evolution of AI
Source: Coatue. Through year-to-date 2025.
The chart above from Coatue’s (a tech-oriented hedge fund and venture capital manager) 2024 East Meets West (EMW) Conference (here) shows how Coatue is considering the evolution of AI.
Coatue views the development of AI as the latest technology platform shift.
As always, the key is to be investing looking towards the future.
We are now concurrently in phases 3 and 4+ as there is a combination of robust application development and physical AI.
It should be noted that past platform shifts such as the mobile internet and cloud / SaaS have lasted for several years and have persisted through market cycles.
(Past performance is not indicative of further results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own due diligence).
3. Semiconductors Peaked Six Months Ago…
Source: TradingView. Through year-to-date 2025.
The chart above shows the Semiconductor ETF (ticker: SMH).
Despite being at the heart of AI build, Semiconductors peaked in late June / early July.
As the S&P 500 has gone on to make new highs without the participation of the Semiconductors, this represents that investors are rotating within equities rather than rotating out of equities.
Initially, part of that rotation went into data center infrastructure and energy names. More recently, in our view, that rotation has been towards Phase 3 AI, application software and Phase 4 AI, autonomous vehicles and robotics.
Nvidia is set to report earnings next week and represents 18% of the Semiconductor ETF.
In our view, even if Nvidia shares rally after the announcement, it may be difficult for the Semiconductor ETF to move above the $280 level that it first achieved last June.
(Past performance is not indicative of future results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own due diligence).
4. A Robotics and Automation ETF
Source: TradingView. Through year-to-date 2025.
The chart above shows the Global Robotics and Automation ETF (ticker: ROBO).
I chose to show this ETF - rather than some others that have Robotics or AI in the name - as this was one of the few that did not include Nvidia, Meta or Tesla in the top 10 holdings.
In fact, this ETF has a lot of international exposure and includes Fanuc, a Japanese company that produces industrial robots for manufacturing (think auto assembly line) and Ambarella that makes “sensor” chips that allow autonomous vehicles to “see.”
While the ROBO ETF is up 22% since August 1 (outperforming the S&P 500 by 7% over that period), it is now fighting to break above $60 which has acted as a ceiling since mid-2022.
If ROBO can move above $60, we believe it can continue to outperform the S&P 500 while providing diversification in many portfolios.
As an aside, it is important that the ETF you choose captures the theme that you wish to express, and it is important that it diversifies your portfolio rather than increasing exposure to certain names.
There are too many ETFs with interesting names that end up being the Magnificent 7 in disguise.
For those without a Bloomberg that want to see ETF holdings, go to Yahoo Finance, input the ticker of the ETF and on the left of the screen, there are a number of performance and other characteristic links. One of these is holdings.
(Past performance is not indicative of future results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own research and due diligence).
5. The Internet Browser / AI Analog…
Source: Bespoke Investment Group. Through year-to-date 2025.
The chart above shows the Nasdaq 100 after the release of Netscape, the first popularized internet browser, in December 1994 (blue line) and the performance of the Nasdaq 100 in the current period since the release of Chat GPT, the first popularized AI agent.
For those that click through to the full Coatue EMW presentation excerpted in chart 2 above (here), slide 11 of the presentation references technology platform shifts with the mainframe computer as the earliest example, AI the latest and the desktop internet (driven initially by Netscape) in the middle.
What’s interesting to me about the analog beyond the desktop internet and AI representing two significant technology platform shifts, is that in 1994, Alan Greenspan raised the Fed Funds rates and executed what is often seen as a textbook softlanding.
In the current period, the Fed has also raised rates without sending the economy (thus far) into a recession.
It should be noted, looking at the top chart which is a close up of a shorter time period, that if the parallel holds, the Nasdaq 100 could be in store for an 16% drawdown (as in 1997) before resuming its ascent.
As we write on every chart, past performance is not indicative of future results, but an interesting analog to consider nonetheless.
(Past performance is not indicative of future results. This is not a recommendation to buy or sell any security and is not investment advice. Please do your own research and due diligence).