Under the Surface

After a brief hiatus (courtesy of a historic Southern ice storm), Adam and Will return to find an index-level market that looks deceptively calm—roughly flat since their last episode—while significant damage has been done beneath the surface to individual stocks. The disconnect between index stability and individual-stock carnage is the central thread of the episode.

The first major topic is AI capital expenditure. Most of the Mag 7 have committed to spending at a scale that would have seemed absurd just a few years ago, and the market, which once rewarded this enthusiasm, has begun to question it as free cash flow risks turning negative within a few years if spending continues at its current pace. The notable exception is Apple, which has largely preserved its free cash flow and financial engineering by not scaling its own AI infrastructure—instead positioning itself as a passive beneficiary of AI-driven hardware upgrade cycles as older devices become too underpowered to run next-generation software.

Software companies have been the most punished segment, with the market essentially pricing in near-zero terminal value for many names a decade out, despite those same companies still showing solid guidance in the near term. The AI disruption narrative has swept indiscriminately through software, insurance, and financial services, producing days where a significant slice of S&P 500 stocks fell sharply while the index itself stayed within striking distance of all-time highs. The hosts note that the damage at the individual stock level has been dramatically worse than what the indices suggest—the average constituent in growth-oriented indices has seen drawdowns many times deeper than the headline numbers.

A discussion of retail trading platforms—using Robinhood as a proxy—puts the individual investor experience in stark context: the average Robinhood trader has seen only modest gains over the past several years before taxes, a period in which simply indexing would have produced dramatically better results. The hosts draw a parallel to horse racing: people are generous in recounting their winners and silent about everything else. Incoming tax refund season may temporarily reflate the most speculative corners of the market, but the hosts are skeptical this represents durable demand.

The conversation ends on a more somber note around the K-shaped economy. Job growth has been concentrated in narrow sectors, consumer sentiment remains poor, healthcare costs are crushing small businesses, and AI is beginning to erode entry-level employment. The hosts express genuine concern that a large segment of the population—still financially scarred from COVID—is being further squeezed while capital markets continue to reward those who already have assets. Whether and how that tension resolves is left as an open and uncomfortable question.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.