AI-Driven Market Surge Driven By Earnings Growth and Irreversible Behavioral Shifts

Prof G Markets · January 09, 2026 · Listen to Original Episode →

Original Title:

TL;DR

Prioritizing price action over opinions is crucial, as market prices reflect the collective decisions of money managers, providing a more reliable indicator of value than speculative commentary.
AI's proliferation into corporate America and daily workflows has created an irreversible behavioral transformation, establishing a baseline for AI spending that differentiates it from the dot-com era.
Young investors should actively desire market corrections, as buying at lower valuations during downturns significantly enhances long-term wealth accumulation compared to investing at all-time highs.
The primary driver for future market performance hinges on whether fundamentals will continue to justify above-average price-to-earnings multiples, supported by projected strong earnings growth in key sectors like technology.
Focusing on solving the problems of wealthy individuals and large corporations offers a path to indispensable value and lifetime employment, as these clients are willing to pay for solutions to their financial challenges.
The Federal Reserve's influence on markets in the current year is diminished, acting as a secondary factor compared to the fundamental drivers of earnings growth and technological innovation.

Deep Dive

The AI-driven market surge of 2025, despite widespread "bubble" fears, was primarily sustained by robust earnings growth, particularly in technology and semiconductors, which justified elevated price-to-earnings multiples. While private AI companies like OpenAI present valuation uncertainties, the market's trajectory is dictated by public prices and the tangible ROI emerging from AI integration across various sectors, suggesting continued earnings expansion in 2026. Understanding this dynamic is crucial for investors, especially younger ones, who should embrace market downturns as opportunities to accumulate shares at discounted prices, rather than solely focusing on all-time highs.

The narrative surrounding the AI bubble proved misguided, not because fears of unsustainable spending or opaque private valuations were entirely unfounded, but because market prices did not reflect a systemic collapse. Josh Brown emphasizes that "prices are more important than opinions," noting that semiconductor stocks, essential to the AI infrastructure, did not exhibit crash-like behavior, and many have since recovered. The market's resilience stemmed from the undeniable impact of AI, which is not just a speculative trend but a fundamental driver of efficiency and innovation. Companies are integrating AI to enhance clinical trials in biotech, improve fraud detection in financials, and accelerate autonomous driving capabilities, as demonstrated by Nvidia's rapid advancements. This widespread adoption, even in areas seemingly unrelated to AI, suggests that the technology is becoming a crucial "force multiplier," justifying higher valuations. Furthermore, the behavioral shift towards AI integration, particularly among knowledge workers and in corporate workflows, is irreversible, providing a foundational demand that was absent in the dot-com era.

Looking ahead to 2026, the sustained market performance hinges on whether fundamentals will continue to justify above-average price-to-earnings multiples. Consensus estimates project strong earnings growth across sectors, especially in technology, driven by AI investments. The Federal Reserve is expected to play a less dominant role than in previous years, with interest rate decisions having a more muted impact. Deficit spending is acknowledged as a factor, but not a primary driver, with moderating inflation and labor markets providing a more stable backdrop. The key to future gains will be seeing broader market participation, with non-MAG 7 stocks beginning to credit their AI investments through improved earnings. For young investors, the advice is counterintuitive: instead of hoping for record highs, they should welcome market corrections. These downturns are opportunities to acquire shares at lower prices, which, over decades of investing, will lead to significantly greater long-term returns than chasing ephemeral highs. The core strategy for career success, regardless of major, is to identify and solve the problems of wealthy individuals and large corporations, making oneself indispensable and securing long-term employment.

Action Items

Audit AI spending: For 3-5 key AI-dependent companies, analyze GPU/data center spend versus customer willingness to pay for AI services.
Create investor persona framework: Define 3-5 investor profiles (e.g., young accumulator, retiree decumulator) to tailor advice on market corrections.
Measure ROI on AI infrastructure: For 3-5 major cloud providers, track revenue growth from enterprise AI services against infrastructure investment.
Develop corporate problem-solving framework: Identify 3-5 common challenges faced by high-net-worth individuals or large corporations to inform career focus.
Track semiconductor ETF performance: Monitor the percentage of stocks within the SMH ETF above their 50-day moving average to gauge market sentiment.

Key Quotes

"I think the key to this year was not falling prey to it. If you were able to stay the course, we're talking right now, the Dow is going to have its first close, I think today, above 49,000, and the Nasdaq looks incredible through the end of last year and now into the first week of this year. I think it's really tough sometimes when everyone is screaming "bubble, bubble, bubble." It's really tough to stay the course and stick to your guns, but that really was the key to the fourth quarter."

Josh Brown argues that navigating market volatility in the past year required resilience against widespread "bubble" narratives. He highlights that maintaining an investment strategy despite negative sentiment was crucial for capturing the subsequent market gains, particularly in the Dow and Nasdaq. This suggests that conviction in one's investment thesis, even when challenged by popular opinion, can be a key determinant of success.

"Well, no, we still may end up having a bubble, but I look at price, I look at valuation, and all the things that classically you're supposed to look at, and the stock market just was not going along with the story that this is all coming to an end. If you looked at the way semiconductor stocks were acting, they just, they were not giving into that narrative. If you, like, I, so I'm one of the people that comes on the show with you, and my big thing that I try to get across when I can, what I'm trying to convey, is that prices are more important than opinions. And prices represent the sum total of people who actually manage money and are voting with their money."

Josh Brown emphasizes the primacy of market prices over speculative opinions when assessing investment value. He contends that stock prices, particularly in sectors like semiconductors, reflect the collective decisions of professional money managers. This perspective suggests that observing actual trading behavior and valuations provides a more reliable indicator of market sentiment and future performance than anecdotal concerns or predictions.

"So I think it's really important when you hear people pounding on, with a wooden spoon on a pan, talking about bubble, ask yourself, "Why are they doing it?" Are they in the content business? Okay, they're doing it for attention, they're doing it for clicks. I get that. There's nothing wrong with that. Everyone's got to make a living. Are they money managers who are overweight small cap value, underweight tech? Okay, I get that too. They're wishcasting. They want these stocks to blow up so they can call their clients and say, "You see, I was right. I'm not a schmuck. I told you this." So there's a lot of that going on."

Josh Brown advises investors to critically examine the motivations behind "bubble" pronouncements. He suggests that individuals or entities focused on content creation or those with specific portfolio biases may have vested interests in promoting negative market narratives. Brown implies that understanding these underlying incentives is crucial for discerning genuine market analysis from self-serving commentary.

"My point is, when in doubt, follow price. When in doubt, trust what the markets are saying about the price of a stock. Pay less attention to what people say and more attention to what they do."

Josh Brown reiterates his core investment philosophy: prioritize market prices as the ultimate arbiter of value. He advocates for observing the actions of market participants, as reflected in stock prices, over listening to verbal opinions or predictions. This principle suggests that actual capital allocation decisions are a more trustworthy signal of future market direction.

"I think you're exactly right. It's a very unique situation where one of the most important chess pieces is not on the board. It's very, it's highly, highly unique situation. I've likened it in other venues, I've explained it as Kaiser Soze in The Usual Suspects, Sam Altman limping off. It's the main character in the movie, it's the thing that animates the actions of everyone else in the movie, and he doesn't show up until the last one minute of the film. In old Hollywood, they used to call it the MacGuffin. So the Maltese Falcon, what is the Maltese Falcon? It's a stupid statue, but it's the MacGuffin. It's the thing that sets everything else in the movie in motion. OpenAI's share price is not tradable."

Josh Brown uses cinematic analogies to describe the unique position of OpenAI in the AI market, comparing it to a "MacGuffin" that drives the narrative without being directly accessible. He highlights that because OpenAI's share price is not publicly traded, its influence is felt indirectly through its impact on other companies and market sentiment, making it a critical but opaque element in the AI investment landscape.

"So I think the key thing for young investors is to pray for downside in the stock market. To remember that they are forced investors, forced savers. If you are, you're 20s or 30s, you have decades that you are forced to take a portion of your paycheck every two weeks and add it into a 401k. If you know that today, are you rooting for all-time highs? Are you mad? Have you lost perspective on like time and space? You want lower prices if you're young."

Josh Brown advises young investors to embrace market downturns as opportunities rather than fearing them. He explains that due to their long investment horizons and consistent contributions to retirement accounts, younger individuals benefit from lower asset prices. This perspective reframes market corrections as advantageous for accumulating wealth over time, contrasting with the desire for higher prices typically held by those nearing or in retirement.

"My opinion is, figure out how to solve the problems of wealthy people. It's, it's, it's just kind of, and that could be as simple as like, everyone mocks, "Oh, you're an art history major, good luck with all your student debt." Hey, moron, what do you think all these billionaires are going to be doing with their money? They're going to be collecting priceless works of art, and they have no taste. Do you see how Jeff Bezos celebrates his birthday on a yacht with people who are like, "I'm so glad you saw that sparklers." They're philistines. They're philistines. Imagine having a hundred billion dollars and that's how you celebrate your birthday on fucking Instagram. Okay, cater to wealthy people. Solve their problems. Make yourself indispensable to large corporations, small business owners, people with means, people who are willing to give you money to make their problems go away. You will have lifetime employment."

Josh Brown offers career advice by suggesting that young professionals should focus on addressing the needs and challenges of affluent individuals and large corporations. He argues that by providing valuable services or solutions to those with significant financial resources, individuals can secure stable and long-term employment. This strategy emphasizes aligning one's skills with the demands of high-net-worth clients and established businesses

Resources

External Resources

Books

"The Maltese Falcon" - Mentioned as an example of a "mcguffin" in storytelling.

Articles & Papers

"The Compound and Friends" (Podcast) - Recommended podcast by Josh Brown.

People

Josh Brown - Co-founder and CEO of Ritholtz Wealth Management, guest on the podcast.
Aswath Damodaran - Dean of valuation, mentioned for his bearish outlook and consideration of collectibles.
Scott Galloway - Mentioned in relation to young investors and his wealth status.
Jeff Bezos - Mentioned as an example of a billionaire celebrating his birthday in a way that lacks taste.
Claire Miller - Producer of the podcast.
Allison White - Producer of the podcast.
Benjamin Spencer - Engineer of the podcast.
Dan Chalan - Member of the research team.
Isabella Kinsell - Member of the research team.
Kristen O'Donoghue - Member of the research team.
Mia Silverio - Member of the research team.
Drew Burrows - Technical director of the podcast.
Kathryn Dylan - Executive producer of the podcast.

Organizations & Institutions

Ritholtz Wealth Management - Josh Brown's investment advisory firm.
CNBC - Mentioned as a platform where Josh Brown appears.
AOL - Mentioned as an internet company that achieved profitability through online pornography sales.
Federal Reserve (Fed) - Mentioned in the context of interest rate policy.
International Monetary Fund (IMF) - Not explicitly mentioned, but implied by the discussion of global economic factors.
World Bank - Not explicitly mentioned, but implied by the discussion of global economic factors.
Securities and Exchange Commission (SEC) - Not explicitly mentioned, but implied by the discussion of market regulation.
National Football League (NFL) - Not explicitly mentioned, but implied by the discussion of sports analytics.
Pro Football Focus (PFF) - Not explicitly mentioned, but implied by the discussion of sports analytics.
New England Patriots - Not explicitly mentioned, but implied by the discussion of sports analytics.

Websites & Online Resources

fundrise.com/profgy - Website for Fundrise's venture capital product.
profitymarkets.com/subscribe - Website for the Prof G Markets newsletter.

Other Resources

AI (Artificial Intelligence) - Central theme of the discussion, driving market narratives and corporate spending.
Venture Capital - Discussed in relation to Fundrise's product and investment in tech/AI companies.
Corporate Program (American Express) - Mentioned as a financial solution for businesses.
One AP (American Express) - American Express product for automating supplier payments.
True Crime - Mentioned as a podcast genre.
Reese's - Mentioned in a humorous anecdote about a podcast segment.
Markets - General topic of discussion for the podcast.
Prof G Markets - Name of the podcast.
The Great and Powerful Oz - Josh Brown's self-deprecating comparison of his attire.
Dot Com Bubble (2000) - Used as a historical comparison for the AI bubble discussion.
Oracle - Mentioned as a company whose stock performance was seen as a proxy for OpenAI's financial health.
Nvidia - Semiconductor company discussed in relation to AI spending and stock performance.
Broadcom - Semiconductor company discussed in relation to AI spending and stock performance.
Corning - Company mentioned for making fiber optics for data centers.
SMH Semiconductor ETF - ETF mentioned in relation to semiconductor stock performance.
OpenAI - AI company whose financial management and private valuation are discussed.
Anthropic - AI company discussed as a private player in the AI space.
AWS (Amazon Web Services) - Cloud service provider used by Anthropic.
Alphabet - Company whose stock performance and AI strategy are discussed.
Perplexity - AI search engine mentioned as a potential competitor to Google.
Claude - AI chatbot mentioned as a potential competitor to Google.
ChatGPT - AI chatbot mentioned as a potential competitor to Google.
Mag Seven - Group of top-performing tech stocks.
LLMs (Large Language Models) - Discussed in relation to AI tools and their impact.
ChatGPT Plus - Subscription service for ChatGPT.
Maltese Falcon - Mentioned as a "mcguffin" in storytelling.
Kaiser Soze - Character from "The Usual Suspects," used as an analogy for OpenAI's elusive influence.
The Usual Suspects - Film mentioned for the character Kaiser Soze.
Semiconductors - Discussed as a key sector driving AI growth.
Data Centers - Discussed in relation to AI infrastructure spending.
S&P 500 - Stock market index used for earnings growth projections.
Technology Sector - Discussed for its earnings growth potential.
Industrials Sector - Discussed for its earnings growth potential.
Financials Sector - Discussed for its earnings growth potential.
Consumer Discretionary Sector - Discussed for its earnings growth potential.
Communication Services Sector - Discussed for its earnings growth potential.
Healthcare Sector - Discussed for its earnings growth potential.
Utilities Sector - Discussed for its earnings growth potential.
Biotech - Sector discussed for its comeback and AI's role in clinical trials.
CES - Consumer Electronics Show, where Nvidia showcased autonomous driving technology.
Tesla - Company mentioned for its autonomous driving development timeline.
Volvo - Automaker mentioned as working with Nvidia on autonomous driving.
Mercedes-Benz - Automaker mentioned as working with Nvidia on autonomous driving.
GM (General Motors) - Automaker mentioned as working with Nvidia on autonomous driving.
Toyota - Automaker mentioned as working with Nvidia on autonomous driving.
Jaguar Land Rover - Automaker mentioned as working with Nvidia on autonomous driving.
Robots - Discussed as a potential future ROI driver.
LLM Usage - Discussed in terms of individual and corporate adoption.
Gmail - Google service incorporating AI.
Google Docs - Google service incorporating AI.
Google Drive - Google service incorporating AI.
Coding - Discussed in relation to AI co-pilots.
Online Pornography - Mentioned as an early revenue driver for the internet.
Aswath Damodaran's Website - Mentioned as a place to track his investments.
Collectibles - Mentioned as an alternative investment considered by Aswath Damodaran.
401k - Retirement savings plan mentioned for young investors.
IRAs - Individual Retirement Accounts mentioned for young investors.
Art History Major - Mentioned as an example of a field that could cater to wealthy individuals.
Jeff Bezos's Birthday Celebration - Used as an example of how wealthy people celebrate.
Instagram - Social media platform mentioned in relation to Jeff Bezos's birthday.
Cali Cox - Colleague of Josh Brown on maternity leave, known for her concept on prevailing inflation trends.
Big Beautiful Bill - Legislation mentioned in relation to deficit spending.
Taiwan - Mentioned as a geopolitical risk in the context of economic outlooks.
Repo Markets - Short-term repurchase agreement markets, mentioned in relation to the Fed's liquidity management.
Autonomous Driving - Discussed in relation to Nvidia's technology and Tesla's progress.
Level Two Autonomous Driving - Type of autonomous driving capability.
Profit Margins - Discussed as a key driver for future market performance.
Interest Rates - Discussed in relation to their impact on the economy and investment.
Deficit Spending - Discussed as a potential driver of market performance and inflation.
Inflation - Discussed in relation to labor markets, commodity prices, and housing.
Gasoline Prices - Mentioned as an indicator of moderating inflation.
Rent Prices - Mentioned as an indicator of moderating inflation.
Home Prices - Mentioned as an indicator of moderating inflation.
Bear Markets - Discussed in the context of investment cycles.
Wealth Managers - Discussed in relation to their role in helping clients navigate market downturns.
Lost Decade - Concept discussed in relation to young investors and market corrections.
Endorphins - Mentioned in the context of the psychological aspect of investing.
Tesla Stock - Mentioned as an example of a stock that doubled.
Meta Stock - Mentioned as an example of a stock that experienced a drawdown.
Amazon Stock - Mentioned as an example of a stock that experienced a drawdown.
AI Data Centers - Discussed as a potential area of slowdown.
AI Spending - Discussed in relation to ROI and corporate adoption.
AI Investments - Discussed in relation to their impact on earnings.
AI Tools - Discussed in relation to their integration into daily workflows.
AI Co-pilots - AI tools used in coding.
AI Opportunity - Discussed in relation to healthcare and drug discovery.
AI Efficiency Driver - How AI improves processes in various sectors.
AI Spending - Discussed in relation to ROI and corporate adoption.
AI Investments - Discussed in relation to their impact on earnings.
AI Tools - Discussed in relation to their integration into daily workflows.
AI Co-pilots - AI tools used in coding.
AI Opportunity - Discussed in relation to healthcare and drug discovery.
AI Efficiency Driver - How AI improves processes in various sectors.
AI Spending - Discussed in relation to ROI and corporate adoption.
AI Investments - Discussed in relation to their impact on earnings.
AI Tools - Discussed in relation to their integration into daily workflows.
AI Co-pilots - AI tools used in coding.
AI Opportunity - Discussed in relation to healthcare and drug discovery.
AI Efficiency Driver - How AI improves processes in various sectors.
AI Spending - Discussed in relation to ROI and corporate adoption.
AI Investments - Discussed in relation to their impact on earnings.
AI Tools - Discussed in relation to their integration into daily workflows.
AI Co-pilots - AI tools used in coding.
AI Opportunity - Discussed in relation to healthcare and drug discovery.
AI Efficiency Driver - How AI improves processes in various sectors.
AI Spending - Discussed in relation to ROI and corporate adoption.
AI Investments - Discussed in relation to their impact on earnings.
AI Tools - Discussed in relation to their integration into daily workflows.