AI gold rush to continue as September returns continue to shine

Global equities moved higher in September with most major indices making positive returns, with US equities leading the way returning 4% (in sterling terms). This meant it was another strong quarter for risk assets as market enthusiasm around AI gained momentum, trade tensions were eased and we saw the Federal Reserve cut rates for the first time since December 2024. 

Figure 1. Regional equity returns (Source: Pacific Asset Management, September 2025)
 
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US Tech - AI sentiment continues to shine brightly

Much has been made about the AI theme in recent weeks as investors contemplate whether we are entering a golden age of heightened productivity or whether the Nvidia circular economy, in which Nvidia invests or lends money to other companies who in turn use Nvidia Graphics Processing Unit (GPU) may be creating an inflated perception of the demand for AI. 

This creates an innovators dilemma for Corporate America: if they don’t embrace new technology they risk losing their competitive edge…..think Blockbuster video dismissing ‘streaming’ as being too expensive and instead continuing to focus on their bricks and mortar model back in the 2000s.

The fear of being left behind has seen management teams at US technology companies adopt a cavalier approach with Mark Zuckerberg (CEO of Meta) expressing that misspending a couple of hundred of billion in the US would be ‘unfortunate’ but ‘the risk is higher on the other side’. Similar comments have been made by Larry Ellison of Oracle and Sundar Pichai of Alphabet.

The ability to invest billions of dollars in projects with uncertain returns has been made possible only by the exceptional financial strength of leading US technology companies. Simply put, few firms have the scale or resilience to take such risks. In today’s market - where investors are rewarding companies viewed as ‘enablers’ and ‘beneficiaries’ of the emerging AI economy - this dynamic has led to a renewed period of narrow leadership, with a small group of companies driving the majority of returns.

This can be seen in the returns of US Technology companies.  After a challenging start to the year they’ve returned over 30% since April compared to the 14% return of the broader market.  Meanwhile technology companies as a share of the US equity market have more than doubled to 35% from 15% in September 2006. 

Figure 2. Returns of US Mega Cap companies (Source: Pacific Asset Management, September 2025)

Figure 3. US Equity Market: Sector composition (Source: Pacific Asset Management, September 2025)

Are we entering ‘financial bubble’ territory?

This combination of enthusiasm, unprecedented levels of spending and market moves have raised the inevitable question of valuations and whether we are in a ‘financial bubble’. The challenge lies in that bubbles in markets are only known after the fact - one person’s richly valued stock is another’s growth company of the future. 

What is worth noting, however, is that there are several ways to gain exposure to the AI theme beyond simply buying US technology companies. Chinese technology firms, for instance, which trade at significantly lower valuations than their US counterparts, rose 12.6% last month. Meanwhile, sectors such as clean energy - which will form critical infrastructure in an AI-driven world - could also present attractive opportunities for investors.

This challenges the convention that the US is the only game in town as the rally in technology companies outside of the US has supported a broader rally in emerging market equities with strong returns seen in China, Taiwan and South Korea. This combined with a weakening dollar and emerging market economies having lower levels of debt than their western peers - the average debt-to-GDP ratio of Emerging Markets (EM) economies is 75%, while for Developed Markets (DM) economies it is 110% - means the outlook continues to look positive. 

Gold looks polished as safe haven prices soar

Another notable development in markets is the continued rally in gold. While the surge in AI-related stocks might suggest unbridled investor optimism, the historic safe-haven asset has also been on the rise. The price of gold reached $4,000 per troy ounce briefly, as investors sought diversification amid concerns over the fiscal profligacy of Western governments, heightened political instability, and a weaker US dollar. Meanwhile, gold mining companies gained 21% over the same period, benefiting not only from higher gold prices but also from a marked improvement in corporate balance sheets across the sector. 

This highlights the importance of not only being regionally diversified and looking beyond the US but also expanding into asset classes beyond traditional equities and bonds - such as real assets and alternatives. While it’s impossible to know with certainty when a market bubble might form or burst, investors should always prepare prudently and take a diversified approach to managing their investments.
 
If you have any questions or concerns about your investments or your future plans, don’t hesitate to get in touch with your TPO Adviser or contact us centrally through our website.

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This information in this article is correct as at 10/10/2025.

This market update is for general information only, does not constitute individual advice and should not be used to inform financial decisions. Investment returns are not guaranteed, and you may get back less than originally invested; past performance is not a guide to future returns.