The current bull market is being powered by two extraordinary forces: (1) the secular growth of Artificial Intelligence (AI) and (2) the Federal Reserve’s pivot toward interest rate cuts.
AI is no longer a niche technology, it is a foundational shift reshaping industries. From enterprise software to healthcare and manufacturing, AI adoption is accelerating at a pace that rivals the early days of the internet. We view this as a structural bull market, not a speculative bubble, because earnings growth is following adoption. For example, AI-driven productivity gains contributed to double-digit earnings growth in the S&P 500 this year, with technology leaders leading the charge. This is only the beginning.
Oracle’s earnings report last week underscored this insatiable demand for AI. The company reported a 359% year-over-year surge in Remaining Performance Obligations (RPO) to $455 billion, driven by massive multi-year cloud and AI infrastructure contracts [1]. Cloud Infrastructure revenue jumped 54%, fueled by demand for GPU-powered AI workloads. Oracle now projects its cloud revenue to grow 77% this fiscal year, with a long-term target of $144 billion by FY2029.
This backlog provides rare visibility into future revenue streams and reflects the scale of AI’s impact. As Oracle’s CEO Larry Ellison put it, “AI changes everything.” [2] Oracle’s earnings were a seminal event.
The Federal Reserve recently began cutting rates after holding them at two-decade highs creating another tailwind for the market. Historically, rate cuts, especially when paired with strong earnings growth, tend to support equity markets. The Fed has cut rates 12 times when the S&P 500 was near record highs and each time the market was materially higher one year later (15% median return) [3]. Lower borrowing costs stimulate investment and consumer spending, creating a favorable backdrop for growth-oriented sectors like technology. In 2026, there will be additional tailwinds created by the One Big Beautiful Bill (lower taxes, bonus depreciation tax credits, etc.), de-regulation and new projects related to foreign investment commitments. Each of which could contribute materially to economic growth. While every cycle is different, environments with declining rates and rising profits have historically delivered above-average equity returns.
Behind the scenes, AI’s explosive growth is creating unprecedented demand for electricity. Data centers powering AI models are incredibly energy-intensive, and U.S. electricity demand from AI is projected to grow at double-digit rates through the decade. Some estimates suggest AI data centers could require 14 gigawatts of additional capacity by 2030, equivalent to powering millions of homes [4]. Deloitte projects that power demand from AI data centers could grow more than thirtyfold by 2035 [5]. This potential exponential growth is why energy infrastructure and power generation remain core investment themes in our strategies.
These trends - AI adoption, monetary easing, and the need for massive infrastructure investment - are idiosyncratic drivers that don’t follow traditional economic cycles. They create opportunities in sectors such as:
Our strategies are positioned to capture these themes while managing risk through diversification and disciplined allocation. But there are other important benefits as well:
Secular themes and stock selection are key to generating idiosyncratic alpha.
Idiosyncratic alpha refers to returns that are independent of broad market movements, driven instead by unique insights and positioning. By focusing on powerful secular themes like AI and energy infrastructure - and pairing that with disciplined, research-driven stock selection - we aim to capture growth that passive strategies often miss.
This investment approach has produced exceptional returns for us, particularly this year. As of 9/24/25, our Global Vigilance Tilt model is up 35.9% and our Global Vigilance Moderate composite is up 26.3% (note: both returns are gross of fees) [6]. Both strategies are significantly outperforming the S&P 500 which is up 13.9%. Nearly 100% of their outperformance is due to idiosyncratic alpha. In other words, style factors, market, country and currency exposures explain almost none of the outperformance. This should not be overlooked.
Idiosyncratic alpha matters because it reflects returns driven by a manager’s unique insights rather than broad market or factor exposures. Unlike beta-driven performance, which can be replicated cheaply through passive strategies, idiosyncratic alpha signals genuine skill in security selection or timing. It also provides diversification benefits since it is uncorrelated with market risk, improving portfolio efficiency and resilience during systemic shocks. For allocators, persistent idiosyncratic alpha suggests a repeatable competitive edge, making it a key justification for paying active management fees.
We are at a pivotal moment in market history, where the convergence of transformative AI technology and supportive monetary policy is creating extraordinary opportunities for investors. The secular growth of AI, combined with the Federal Reserve’s shift toward easing, is driving a new era of innovation, productivity, and investment returns. Yet, beneath these headline trends lies a critical need for energy infrastructure and disciplined stock selection—areas where unique insights can deliver true idiosyncratic alpha. Our strategies are designed to capture these powerful themes while managing risk, and our results this year demonstrate the value of this approach. As we look ahead, we remain committed to navigating volatility with creativity, research, and conviction, confident that the long-term trajectory for AI-driven growth and infrastructure investment remains compelling.
If you would like to discuss how these themes could impact your portfolio, or explore ways to position for the opportunities ahead, please reach out to our team. We welcome your questions and look forward to partnering with you on your investment journey.
Disclosures
LIM is an Investment Advisor based in Dallas, Texas and registered with the Securities and Exchange Commission. Registration does not imply a certain level of skills or training. LIM is a company with purpose, dedicated to creative and unique thinking. We focus on portfolio valuation and research, along with superior client experience. We seek to identify investment opportunities by looking at economic factors, security valuation and human behavior. We start with the fundamentals of portfolio management and valuation. Then we build on these fundamentals with unique thinking and creative intelligence gathering to form a viable investment thesis. We believe this approach leads to dynamic global portfolios with increased return and managed risk. LIM utilizes Charles Schwab & Co. Inc. (“Schwab”), a FINRA-registered broker-dealer, member SIPC, as its custodian of assets. LIM is independently owned and operated and not affiliated with Schwab.
Additional disclosures:
This document may contain forward-looking statements based on LIM’s expectations and projections about the methods by which it expects to invest. Those statements are sometimes indicated by words such as “expects,” “believes,” “will” and similar expressions. In addition, any statements that refer to expectations, projections or characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guaranties of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual returns could differ materially and adversely from those expressed or implied in any forward-looking statements as a result of various factors.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results.
Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
This document is a general communication being provided to you for information purposes only. This communication is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan design feature or any other purpose. By receiving this communication, you agree with the intended purpose described above. Any examples used in this material are completely hypothetical and for illustration only. The document is for the sole use of the person to whom it is addressed and is privileged and confidential. Use by anyone other than the addressee is strictly prohibited.
Definitions
The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock’s weight in the Index proportionate to its market value.
The Nasdaq Composite Index is a market cap-weighted index, representing the value of all stocks listed on the Nasdaq Stock Market. The composition of the Nasdaq Composite is a mix of long-established companies that have been on the exchange since inception, to IPO newcomers, companies that grew from OTC exchanges or switched from other exchanges.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
The Bloomberg US Aggregate Index is a broad-based flagship benchmark that measures the investment grade, US dollar-dominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate pass throughs), asset-backed securities, and commercial mortgage-backed securities.
The S&P 500 Equal Weighted Index is the equal-weight version of the S&P 500. The index includes the same constituents as the capitalization weighted S&P 500 index, but each company is allocated the same fixed weight at each quarterly rebalance.
The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 Index total market capitalization.