The Middle of a Fiscal Reckoning Revisited: Focus on What We Can See

Since there are no major policy shifts coming out of the budget bill, despite the 3% reckoning in the U.S., investors should focus on these three investment themes:

• Protection against deficits and debt: Assets like gold and crypto were big winners in the first half of 2025, but remain powerful portfolio diversifiers despite their run-up.
• AI continues to astound: The AI boom is driving corporate profitability potential and demand for energy, infrastructure, and next-gen computing.
• Opportunities in India and Middle East: India’s digital adoption and scale are accelerating its rise as a global growth engine, while Middle East energy and infrastructure stand to benefit from the AI power surge.

View the Q3 2025 Outlook Presentation

Murky Waters: No Strong Fiscal or Monetary Policy Changes

Despite being in the middle of a period of fiscal overspending, we are not seeing a sharp shift in policy. In addition:

• Deficit math is not precise: Not all details are known, assumptions are important, and some items, like tariff revenue, aren’t even part of deficit calculations.
• Labor market signals are muddled by structural shifts: AI is softening demand for white-collar jobs, while immigration reform could tighten supply—leaving overall employment data difficult to interpret.
• Inflation is a mixed bag: Goods prices are falling, but services inflation remains sticky. Add in rising tariffs, and investors again face a noisy inflation picture.
• Growth looks slower, but profits don’t: While GDP and consumer data suggest economic deceleration, earnings remain resilient—driven by margin expansion and tech-led efficiency. The result is a widening disconnect between macro signals and market performance.

Taken together, these crosscurrents make the current macro environment unusually noisy. For investors, this reinforces the importance of higher-conviction themes.

AI Continues to Astound

The first phase of the AI trade was dominated by a handful of mega-cap tech giants. Companies like NVIDIA captured outsized gains as foundational model training became the market’s biggest arms race. But now, with infrastructure largely in place and foundational models deployed, the focus is shifting to real-world applications—and to the physical systems required to power them.

The training and deployment of AI models, particularly in high-density data centers, is also consuming exponentially more electricity. This is creating knock-on demand for energy infrastructure: natural gas as a transitional fuel, nuclear as a long-term solution, and power transmission upgrades across the grid.

ChatGPT Downloads Far Outpace All Other Social Platforms

App Store downloads: ChatGPT vs. leading social apps

Source: Similarweb. Data as of June 24, 2025. Any projections, forecasts and other forward-looking statements are not indicative of actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice.

International is Back, Major Developments

While the last decade was a “lost decade” for emerging markets in terms of performance, we continue to like the new winners--India and the Middle East. India is not only home to the most people in the world, it also has the largest percentage of ChatGPT users in the world. This underscores the country’s rapid digitization, thriving equity market and demographic trends that are creating compelling investment opportunities that we believe investors should be exploring. While India’s economic reforms were implemented years ago, they played out in Q2. Another often-overlooked region is the Middle East. As the AI boom accelerates, the region’s energy resources and infrastructure are well positioned to benefit from the surge in power demand driven by artificial intelligence. The region also struck major AI deals in 2025, despite political conflict.

India++ Share of GDP Will Pass the EU in 10 Years

Source: VanEck Research; IMF; Bloomberg as of 6/30/2023. Past performance is no guarantee of future results. Any projections, forecasts and other forward-looking statements are not indicative of actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice.

Key Takeaways

• Uncertain U.S. debt and deficit solutions call for macro hedges. With risks of fiscal overspending, gold and crypto should be kept as buffers against volatility despite tremendous gains already this year.
• AI expansion creates new winners beyond megacap tech. As foundational models give way to real-world deployment, opportunities are emerging in energy, infrastructure, and the broader AI ecosystem—making this a prime time to reengage with select growth and next-gen tech enablers.
• International is back. India and the Middle East stand out. India’s digital leap and favorable demographics position it as a future economic powerhouse, while rising AI-driven energy demand boosts the investment case for Middle East infrastructure.