Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How the Bull Market Is Betting on Cloud Infrastructure as AI Competition Intensifies
Transcript
- Lucas: So the S&P 500 drops one point two percent over the past week, the Nasdaq sheds nearly three percent, and yet Datadog climbs eight percent and Cloudflare adds three. That divergence is the story right now — the bull market is quietly rotating into companies that provide the plumbing for AI, even as the high-profile AI names take a breather. Luna: It's almost like the market is saying 'we want the picks and shovels, not the miners.' But what's driving that shift specifically this week? Lucas: Two big forces. First, the GDP data released earlier this month showed real GDP growth accelerating to two point one percent annualised from just half a percent before. That signals that enterprises have more confidence to spend on IT infrastructure. Second, the headlines out of China — Beijing threatening retaliation against the U.S. humanoid robot ban, and Chinese AI models competing on cost — are reminding investors that the AI race is global and messy. Luna: So investors are betting that companies like Cloudflare and Datadog benefit no matter which AI platform wins, because every AI app needs fast networking and observability. That makes sense. Lucas: Exactly. And look at the numbers — Datadog's eight percent gain isn't just a one-day pop; it's part of a pattern where infrastructure software is getting a premium. Meanwhile, the Russell 1000 Growth ETF, IWF, is down three point eight percent over the same period. The ARK Innovation ETF, ARKK, down four point four. The momentum is leaving pure-play growth and going into what I'd call 'ai enabling value.' Luna: Value might be a stretch — these stocks still trade at elevated price to earnings ratios. But they have something that many pure AI plays don't: proven revenue growth and a clear path to profits. Lucas: Right, and that's the subtle shift. We talked earlier in this series about how growth stocks can become a trap in a mature bull market. Now we're seeing the market actually vote with its dollars. The Dow dropping a thousand points earlier this week was a scare, but it recovered — down just point two percent over five days. That resilience is partly because money rotated into sectors that can weather geopolitical shocks. Luna: Speaking of weathering shocks, I want to ask about something — but before I do, I have to say, if today's conversation helped you think about your portfolio or a career move differently, you know where to find us. It's buy me a coffee dot com slash fexingo. That small gesture helps keep this show ad-free and independent. Lucas: Honestly, even a one-time coffee makes a difference. And it keeps us focused on exactly these kinds of shifts, rather than chasing sponsors. So thanks for that — genuinely. Luna: Now back to the rotation. Lucas, you mentioned CrowdStrike down two percent this week — doesn't that undermine the cybersecurity thesis? CrowdStrike is a major security player, and you'd think geopolitical tension would boost it. Lucas: It's a fair point. CrowdStrike is down two point two percent over five days, and that's despite a very solid product. But the market might be treating CrowdStrike as more of a 'security product' than an 'AI infrastructure' play. Cloudflare, on the other hand, sits at the network layer — every data packet sent across the internet potentially runs through their services. That's a broader mandate. Luna: So the bet is on network effects rather than endpoint protection. And Datadog's surge fits that: monitoring and observability are also infrastructure-level needs. Lucas: Precisely. And don't overlook that the Fed held rates steady at three point six three percent — the interest on reserve balances unchanged. That keeps the cost of capital stable for these companies. If the Fed were hiking, high-multiple stocks would get crushed. But with rates flat, the market can afford to pay a premium for growth that's backed by real cash flows. Luna: You mentioned 'ai enabling value.' Where does that leave a company like Palantir, which is down point three percent? It's up barely anything — almost flat. Lucas: Palantir is fascinating because it sits in between. It sells software that enables AI decision-making, but it's also deeply tied to government contracts and geopolitical narratives. The flat price this week suggests that the market is still processing the China retaliation headlines — could it hurt Palantir's international business? Possibly. But it could also boost demand for its defense work. For now, it's a coin flip. Luna: So if I'm an investor looking at this landscape, the takeaway is: look for companies whose revenue depends on the volume of AI usage, not the winner of the AI race. That means cloud infrastructure, data pipelines, networking. Lucas: That's exactly it. And the GDP acceleration from point five to two point one percent gives you the macro cover: enterprise IT budgets are expanding, and the money is flowing to the enablers. We saw Shopify jump fifteen percent this week — that's another enabler, but for e-commerce. The pattern is consistent. Luna: One thing I keep wondering: are we at risk of calling a new bull market sub-sector too early? I mean, Datadog and Cloudflare have had big runs already. Lucas: There's always that risk. But the rotation is backed by data — not just price action. The NYSE composite actually gained point three percent this week, while the S&P fell. That breadth improvement tells me that money is leaving the mega-cap tech names that had become overcrowded. And it's moving into smaller, more diversified tech. That's healthy for the bull market's longevity. Luna: So if the bull market continues, we might see this infrastructure theme become a dominant narrative for the second half of 2026. Lucas: I think so. And the key number to watch is enterprise IT spending growth. If the GDP acceleration holds or strengthens, these cloud infrastructure names still have room to run. But if the China tensions escalate into a full tech decoupling, the picture gets murkier. Luna: Murky but not necessarily bad for these infrastructure plays — because decoupling could mean even more domestic investment in U.S. cloud infrastructure. Lucas: That's the bull case. And it's why I'm paying closer attention to this sub-sector than to the next big AI hype story. The infrastructure story is more durable.