By Gary Aiken | November 5, 2026
It’s been a rough earnings season for the owners of information technology stocks and industrial stocks tied to the artificial intelligence (AI) boom. While there are certainly some technical, seasonal, and idiosyncratic explanations, as in many cases, simpler is better. The way Concord has constructed its framework around AI risk has been the subject of recent Insight pieces and episodes of our excellent podcast “Built to Last.” There was an Irish pub near my home in Falls Church called the Four Provinces – the Four P’s, as we used to call it. Four P’s may also be a shorthand to contextualize the selloff and maybe find value for the future.
The first “P” is Power. The technology sphere has taken to explaining capacity not in megahertz or terabytes, but in megawatts. Datacenters are filled not with humans (although there’s still a contingent of us), but with servers. These servers contain circuit boards filled with microchips for computing and memory, copper, gold and advanced optical wiring, power supplies and cooling mechanisms. Increasing compute devours and requires more memory and storage. These server farms need electricity to run. And as they power through tasks, they generate heat and need to be cooled – and that takes electricity, too. The generation, transmission, and storage of electricity to power the expanding number of datacenters is not keeping pace with demand. Further, this isn’t the type of demand where just because the price goes up, supply magically appears.
Supply is constrained – it’s a “bottleneck.” Without a magical ramp for capacity, a bottleneck constraint remains. The variable that solves this equation is time. Remember that. It will be important later.
The second and third “P’s” are Permits and Politics. If you want to build a deck or remodel your kitchen, you need a permit. If you live in a neighborhood with an HOA, you might need their permission, too. If you wanted to build a new building or subdivision, it would require environmental studies and zoning approvals and probably go through some local government approval process. Imagine you had made some political enemies along the way – even if only they knew you were their enemy. They show up, they make political donations, they make speeches and ads and try to convince elected officials that approving your new datacenter would be hazardous to their future electoral prospects. That approval process might get bogged down. It might get much, much slower. Days turn into weeks and months. Even if you have the financing in place, the components ordered, and the contractors ready to go, you can’t break ground without those approvals. Permits and politics add time before you can start, and completion times get longer, too.
The fourth “P” is the Price of Money. While you were waiting for power and permits, a second war broke out in a region of the world that supplies a huge amount of oil, natural gas, and derivatives like fertilizer and refined fuels. Inflation starts to rise and central banks around the world start reacting – they start raising interest rates. Some of your competitors have also borrowed too much money – at least market participants think so and the credit agencies tend to agree. Unfortunately, your price to borrow – your interest rate – goes up, too. Interest rates on shorter-term loans have increased from 4% to 8% for the best borrowers and are now into the low double digits for the average borrower. Not terrible in the long run; after all, you penciled in a number like that in your pro forma and the project still makes sense.
Your shareholders have choices, though. The value of a business is the present value of future cash flows discounted at some interest rate. Cash flows that are further away in time are not worth as much as cash flows nearer to us. Power and permit constraints are pushing cash flow further into the future while interest rates are going up today. Power and permit timelines are also becoming increasingly less certain and therefore riskier, so maybe we will increase our discount rate a little more to account for that execution risk.
Presented with these new facts, it’s not hard to see how over the course of 2026, valuations of every company in the AI datacenter buildout ecosystem have fallen into a bear market. The UBS AI Industrials Index is down 27% since its highs in early July. This custom index includes the companies involved in building, powering, cooling, and providing electrical infrastructure at the datacenter and to the grid. The Morgan Stanley AI Tech Beneficiaries Index is down about 35% over the same time frame. This basket of stocks includes firms across semiconductor and semi equipment, optical networking, and storage.
Tech Stocks Have Declined Since Their June Highs
Source: Bloomberg Finance, LP
And yet, virtually every company in each of these indexes is profitable and is likely to generate higher revenue and greater profits next year than it did this year. How is it possible that a company is likely to make more money in the future, but its stock price goes down?
Market expectations were too high. Microsoft, Oracle, Google, and Amazon all reported in the past two weeks that they are not increasing their scheduled capital expenditures for next year. It’s not because they don’t want to. Each has shown that the money they’ve invested in datacenter buildout has a high return on invested capital.
My contention is that it’s the Four P’s. Power, Permits, and Politics are timing bottlenecks stretching cash flows further into the future and making them less certain. The Price of Money requires a new calculation resulting in lower valuations. There’s still an AI competition, but it’s no longer a game of leapfrog to the top. Like the Tortoise and the Hare, maybe slow and steady wins the race. In that environment, buying the stocks of companies well off their recent highs could make sense.
Author
Gary Aiken
Chief Investment Officer
Concord Asset Management
Gary Aiken is the Chief Investment Officer for Concord Asset Management and is responsible for macroeconomic analysis, asset allocation, and security selection, as well as trading and investment operations.
Gary has over 23 years of investment experience and holds an undergraduate degree in economics from the University of Maryland and an MBA from The George Washington University School of Business.
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