August CRU: Record Markets, AI & Rising Cyber Risks

Driven by the very strong earnings results and outlooks of its key constituents, the S&P 500 Index is back at record highs. The world’s biggest technology companies (so-called “hyperscalers”) spent much of the year defending their spending on artificial intelligence infrastructure and datacenters (expected to be $1.2 trillion in 2027); they are leading the way once again. The inflection was a pair of earnings reports showing that AI-related revenue growth is accelerating for Microsoft and Amazon, until recently two of the group’s worst performers. Amazon did a particularly good job of explaining how its investment in data centers and “compute” is paying off.

The S&P 500 Index has returned almost 23% since its low at the end of March, but a surprising number of companies have not participated – almost 25% of the constituents (including well-known companies like McDonald’s, Nike, Netflix, Pfizer, Verizon, Visa, and Walmart) are lower since then.

AI is again all the rage for investors, though recent security breaches are concerning. Just this week, credentials belonging to Nvidia, Microsoft, Amazon and others were exposed in an attack on open-source tool that streamlines AI-driven software development. As with many of these attacks, better compliance with cybersecurity best practices would have mitigated or possibly eliminated the opportunity.

In some areas of cybersecurity, we seem to be asking for trouble. Earlier this month, hackers launched a wave of attacks targeting information systems at major investment managers (not including TriCord Advisors or Portfolio Design Labs!). The attacks used voice phishing (“vishing”) – technology to mimic voices in phone calls or messages to trick employees into revealing sensitive information.

In an odd coincidence of timing, two of my personal financial institutions asked me the same week to provide a voice sample to be used as part of an enhanced multi-factor authentication. Of course, passwords can be compromised. But surely giving new technology additional means to impersonate is ill-advised until we have a better understanding of the technology available to hackers.

Investors are getting the message – stocks of cybersecurity companies have been among the best recent performers.

Disclaimer: The information provided is for educational purposes only and is not intended as investment advice. Past performance does not guarantee future results. Investors should consult with a qualified financial professional before making any investment decisions.