Market commentary: Oct 2025
Investment news and performance
Share markets continue to climb to record highs. New Zealand, which has lagged the rest of the world, has finally got back to where it was in January 2021. Our international equity strategy continues to perform strongly with returns for the year of 19-20%. Australasian shares, infrastructure, and fixed interest all have positive returns. Artificial Intelligence (AI) is the main story, but investors are also watching developments on US tariffs, US/China trade, and central bank interest rate decisions - Donald Trump features large in world events!
Are we in an AI bubble?
Talk of a bubble is on the rise and it centres around the “Magnificent Seven*”. Investor reaction to the latest earnings of most of these companies suggests the artificial intelligence boom is far from over. Yet doubts about future returns from astronomical spending on AI development are gnawing deeper. Is this a bubble and is it about to pop? There are worrying signs:
A high degree of exuberance where investment decisions aren’t based on rational assessment of risk and potential return, but on fear of missing out and greed.
The market is highly concentrated. The combined value of the Magnificent Seven is now more than a third of the total US share market.
The market is stretched. Valuation of the overall US market is 25% above its long-term average.
These are warning signs and based on this you could paint a convincing narrative that we’re in a bubble. On the other hand:
The opportunity from AI is huge. The uptake and application of large language models like ChatGPT by businesses and individuals is just the start.
We’re just starting to enter the age of AI agents that can do things autonomously for us. In the physical world, self-driving cars are becoming a reality. For example, Waymo in San Francisco and Phoenix. Humanoid robots are now considered to be a genuine possibility.
The Magnificent Seven’s dominance in AI is mostly based on solid foundations. These companies are some of the greatest the world has ever seen based on fundamentals.
Valuations of the Magnificent Seven are expensive, but given the opportunity these companies have, they’re not excessive.
On balance there’s not enough evidence to declare that we’re in a bubble, but there are clear pockets of excessive risk and valuations. In this kind of market, we are taking a conservative approach and client portfolios are underweight to international shares. Our fund managers are focussed on avoiding areas of excessive risk and valuation in the share market while looking out for opportunities outside of AI.
* Amazon, Apple, Google, Meta, Microsoft, Nvidia, Tesla
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser