AI: The Good, the Bad and the Ugly

Intro

Artificial intelligence continues to dominate not only the conversations that we're having with clients, but without question is having an impact on economic data. It's having an impact on profits, and it's having an impact on the way that we operate.

I'm going to simplify AI as a topic and look at it through three different lenses: the good, the bad and the ugly.

The Good

On the good side, I think we have to acknowledge what this means for economic activity. Make no mistake, the hyperscalers that spent roughly $400 billion in capital expenditure in 2025 are actually expected to dial that number up in 2026. Estimates are that we're seeing somewhere between $650 billion to $700 billion in fresh capital being deployed in these data centers and other AI-related projects. This is, without question, going to be additive to the U.S. economy. It's going to create a nice tailwind to economic growth.

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We also have to acknowledge what's happening in corporate profits. I think if you take a look at what's been carrying the equity markets and driving that narrative over the last couple of years, AI has been at the center of it — really focusing in on technology.

As we look out over the course of this year, we are expecting that trend to continue.

The Bad

There’s been a lot of concern over AI and how it's going to displace the need for many different types of white collar jobs.

There have been a lot of articles, a lot of charts that have been circulated — some created by these AI companies themselves — suggesting that we may see widespread job losses and disruption in the labor market as a result of AI.

What we know so far is that it is having an impact on entry level jobs. However, we don't believe AI is at a point today where it's going to completely eliminate the need for white collar jobs.

If anything, we expect it to be a moderate headwind, and companies in the face of economic uncertainty will lean into the productivity gains that AI provides them rather than going out and making massive hires.

The Ugly

The last part is the ugly. And AI, when you think about it as a meaningful disruption and what it's causing for markets, what it means for the economy and what it means for different sectors around the world.

In fact, when you think back to the beginning of this year, one of the notions we had heading into 2026 was that this idea of nonlinear returns, this concept that over the last few years you have seen this widespread beta rally and this notion of “a rising tide lifting all boats.”

But as we head into 2026, the fact is that investors were going to have to be a bit more nuanced with where they want to allocate that capital as a result of where we are in the business cycle and what's happening with artificial intelligence.

And that's playing out right now. Take software for example. We have seen absolute carnage in the software space, and the fear is that all of these advancements in artificial intelligence are going to completely displace the need for certain types of companies to exist.

We think this fear is largely overblown, but of course there's always some truth to it.

To the extent your business is very narrow in scope, if there are low barriers to entry and if you don't necessarily have a way of guarding against competition, artificial intelligence coming in at the scale and the magnitude by which we are seeing these enhancements and improvements is going to meaningfully disrupt your business.

If, on the other hand, you have a software company that is being utilized enterprise-wide in a number of different businesses across different sectors and industries, then we think what's more likely to happen is that software company to look for ways to integrate artificial intelligence within their systems and perhaps even charge a premium, raising the barriers to entry and pushing away competition.

From our standpoint, everything that we're seeing happening within AI and software and of course what's happening in private credit as a result of this fear in software creates stress in the market and these dislocations for long term investors can often times be opportunities.

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AI: The Good, the Bad and the Ugly

Intro

The Good

The Bad

The Ugly

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