- Ada Louise Huxtable, architecture critic
If you want a fun reminder of how “the next big thing” can reorder an economy, consider this: before railroads, “local time” was truly local. Noon in one town might be 12:07 in the next, creating potential chaos. When rail schedules started stitching cities together, that chaos became a problem - and the railroads helped standardize time zones to make the network workable. Progress seems to have a way of forcing the world to reorganize itself.
True, some “railroad men” became the era’s celebrity executives, raising capital with the same swagger today’s tech leaders bring to sales projections. And in more than a few cases, the excitement got ahead of reality – rail lines were chartered before routes were finalized, ambitious stations were built for traffic that hadn’t yet materialized, and investors learned (sometimes the hard way) that infrastructure booms can produce both real progress and real speculation.That same “network-building” energy has been on full display in the artificial intelligence (AI) arena. In 2025, the AI story shifted from novelty to infrastructure: data centers, chips, power, cooling, and the software stacks that make it all usable. The parallel to the 1800s rail buildout is compelling: railroads facilitated physical commerce; AI can elevate both service and industrial work. Both required front-loaded capital, both created second-order booms (steel then; semiconductors and power now), and both left investors asking the same question: “Are we building the future - or overbuilding it?”
Despite a year of shifting storylines - tariff anxiety in the Spring, an ever-moving outlook for interest rates, and a steady drumbeat of geopolitical headlines throughout the year - 2025 ultimately proved supportive for investors. U.S. equities posted a third consecutive year of gains, again led by large-cap, growth-oriented companies. The S&P 500 rose more than 17% for the year, with performance fueled by the index’s largest constituents.1 Bonds also delivered solid results as yields drifted lower from year-ago levels and markets grew more confident that the next move in policy rates would be down - an expectation that carries into the new year.
Our base case for 2026 is a “slow and steady” expansion, though the key swing factor is the consumer. For many, the fiscal policy backdrop may provide a meaningful tailwind: Research reports highlight the impact of expected tax refund checks tied to the One Big Beautiful Bill Act, estimating roughly $150 billion of consumer stimulus arriving February through April, with potential spillover into second quarter retail sales and a short-term boost to spending.2 In plain English: if households feel that cash arrive, we should expect at least some of it to flow into travel, services, and big-ticket catch-up - supportive for growth, and (at the margin) a reason why the consumer inflation outlook remains uneven.
We think a key “railroad vs. AI” comparison is not valuation - it’s the share of the economy devoted to building the network. One way to frame it: at the peak of the 19th-century U.S. railroad investment cycle, railroad capital expenditures rose to roughly 6% of GDP. In sharp comparison, current AI data-center investment is often cited around ~1.2% of GDP – that’s large, and it’s rising, but it’s not close to “railroad-peak” scale.3
But direction matters as much as level. Several credible estimates suggest hyperscaler and AI infrastructure spending remains on an upward trajectory, with estimates approaching over half a trillion dollars of fresh capex in 2026.4
Our view: not broadly in the way railroads were - but there may be “bubble-like” pockets.
Bottom line: we do not think the entire market is priced like an “AI-only” story. But we do think parts of the AI ecosystem (especially some highly levered infrastructure plays, or businesses without clear monetization) carry bubble-like risk. The healthy way to participate is to own innovation with quality balance sheets, pricing power, and a credible path from capex to cash flow - while avoiding the temptation to treat every “AI-adjacent” ticker as a railroad-to-the-moon opportunity.
In 2026, we expect a wide range of outcomes by sector and company. The opportunity set may be real, but so is likely dispersion of returns. Our focus remains on building resilient portfolios designed to weather multiple paths: steady growth, a mild labor-market softening, and inflation that may cool in waves rather than a straight line.
As always, we’re grateful for your continued trust. If your financial goals, family circumstances, or cash-flow needs have changed - or you anticipate a change in the year ahead - please let us know so we can ensure your plan and portfolio stay aligned. And if you’d like to discuss how the themes in this letter show up in your strategy - particularly concentration risk, rebalancing after strong equity gains, and the role of high-quality fixed income at today’s yields -we’re here. Finally, if you know of someone who might appreciate a thoughtfully constructed portfolio built around their personal goals, we’d be glad to connect.
Warmly,
Mitch Schlesinger
Chief Investment Strategist
[1] First Trust: The S&P 500 Index 2025 Recap
[2] Strategas: 4Q 2025 Review in Charts
[3] Investment Research Partners: Infrastructure Capex as % of US GDP by Era
[4] Goldman Sachs: Why AI Companies May Invest More than $500 Billion in 2026
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