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Economic data is confounding economists. Growth has been stronger than expected and US inflation has yet to emerge on the scale that has been anticipated. The US economic data has surprised to the upside quite powerfully through recent months (see Chart 1). Last week’s upward revision to Q2 GDP data had economists scrambling to upgrade their GDP forecasts for the second half of the year. The US economic surprise index has climed steeply in recent days. In essence, the story is that global capex has provided a profound impetus to the global economy. In the US robust consumer spending growth has laso helped.
Chart 1: US Economic Surprise Index Sharply Higher
Index
Source: Bloomberg
A Sugar Rush of Capex Growth
In the first half of 2025, corporate capital expenditure surged approximately 11% year-on-year as companies rushed to secure their place in the AI race. The numbers speak for themselves: Alphabet is holding its full-year capex guidance near $75 billion, while Meta has lifted its projection to $64–72 billion. Aggregate spending on cloud and AI infrastructure by the leading hyperscalers is expected to reach about $392 billion in 2025, exceeding the combined spend of the prior two years. In the US, the “Magnificent 7” are leading from the front, with Microsoft lifting its capex guidance for 2025 to as high as 25–30% from roughly 10% of revenue historically; Meta’s share is set to rise to nearly 30% from around 14%.
This wave of investment has momentum. The capital already spent will continue to act as a powerful stimulus to global growth, particularly across the equipment, semiconductor, power, data centre, and infrastructure supply chains. However, the benefits to employment are far less obvious at this juncture. Much of this capex is highly capital-intensive and focused on automation, so the labour multiplier is limited or delayed. The long-term payoff will depend on utilisation rates, the speed of technological obsolescence, and the resilience of global supply chains not every bet by corporate on tech will succeed or achieve the desired return.
Growth is highly uneven, with the lion’s share concentrated in technology, cloud, AI, telecoms, and utilities, and many traditional sectors appear to have lost favour. Much of the current spending is driven by a handful of hyperscalers, meaning the economic stimulus is narrow and region-specific rather than broad-based.
Returns are far from guaranteed: vast outlays result in heavy depreciation costs and the risk of under-utilised assets, especially if AI models become more efficient or demand falls short. As we have already seen, geopolitical tensions, regulatory constraints, and the ever-present risk of technological obsolescence further complicate the outlook, while cycles of higher interest rates, inflation, and energy costs could threaten to sap momentum. The boom has legs, but it is not without vulnerability.
From a purely technical perspective, the tech-heavy Nasdaq composite index, at current levels, is on the same trend line established post-Covid. One could argue that AI-related growth has the ability to maintain growth along on the trend line.
Chart 2: Nasdaq Composite Index on Trend (Log Scale)
Source: Bloomberg
Corporates Preferred over Governments
While the corporate sector is continuing to deliver the goods, it is the government sector that has the markets worried on so many fronts. The market appears increasingly more confident in the corporate sector, or indeed what were previously seen as emerging markets, but the US or European governments have failed to lift sentiments. An intriguing inversion is emerging in credit markets: the notion is gaining traction that corporates may, at times, be considered safer than sovereigns. AXA’s long-dated bonds, for example, yield below equivalent French OATs, signalling that investors may trust the insurer’s balance sheet more than the Republic’s fiscal trajectory. This is not an isolated quirk. Swiss corporates such as Nestlé and Roche have repeatedly issued long-maturity bonds at lower yields than the Confederation itself, a reminder that highly cash-generative global businesses can be viewed as a steadier bet than even AAA-rated governments. In the US, investment-grade household names have on occasion traded tighter than Treasuries of comparable maturities, particularly during debt-ceiling dramas when politics taints the sovereign curve. Dollar-linked Abu Dhabi government paper, meanwhile, sits almost on par with US Treasuries, despite the Emirate’s far smaller scale.
Chart 3: US High Grade Spread Over Treasuries at New Low
Basis points over Treasuries
Source: Bloomberg
There is even a historical echo to the events unfolding today. In the 19th century, the British East India Company, backed by its revenue monopoly and imperial reach was able to borrow at tighter spreads than many sovereign nations of continental Europe. Evidently, investors have long been pragmatic about where true creditworthiness lies. The current anomalies suggest that, in a world of high sovereign debt and fractious politics, disciplined corporate finances and global diversification may once again command the trust once reserved for nation states. Perhaps the ultimate heresy is that the idea of the “risk-free rate” may one day migrate from governments to the balance sheets of the world’s best-run companies.
Indian Equities – Buy Now?
Indian equities have been the big disappointment of 2025. While global markets are up handsomely this year, India sits in the red. Investors are asking if this is just a pause in the India story or the sign of a deeper malaise. To me, the concern is that India has lost its anchor. The United States, once the country’s natural partner, is increasingly absent on trade, defence, and even in supporting India’s role in global technology. Domestically, the technology story is underwhelming. The country exports talent but has not been able to build a credible onshore sector. Without a strategy to change how India approaches tech, it will continue to punch below its weight in the world’s most important growth theme.
Chart 4: India’s Marked Underperformance Usually Offers a Buying Opportunity
Relative performance of MSCI India net Total Return (USD) Versus MSCI ACWI Index rebased to 2015=100
Source: Bloomberg
The question is what could turn sentiments.
The obvious catalyst would be a “policy trifecta” of GST reform, substantive tax cuts, and RBI rate cuts. India has witnessed a good monsoon and that might just deliver the inflation relief needed for the central bank to act. Indeed, if the RBI blinks in the fourth quarter, we could see a strong shift in equity momentum.
The government is aware that consumer confidence is fragile and will be tempted to reach for the tax lever. At the strategic level, I would not be surprised to see a pivot towards Europe, more joint ventures in defence, more co-investment in technology if Washington continues to rewrite the rules of engagement and keeps India at arm’s length. However, it is unlikely that there will be an easy concession on European agriculture: no government in Delhi will sacrifice the interests of its farmers. For now, investors need patience. The ingredients for a rally are there, but until policy delivers, India will remain a laggard on the global stage.
Gary Dugan – Investment Committee Member
Bill O’Neill – Non-Executive Director & Investor Committee Chairman
29th September 2025
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