Do AI Trees Grow to the Sky?

Tuesday, October 7, 2025

Despite flying blind into an economy that looked to be destabilizing somewhat prior to the federal government shutdown, major market indexes since the first of the month are up across the board: from +0.65% on the blue-chip Dow to +1.99% in the small-cap Russell 2000. We’re at all-time record highs on the Russell, S&P 500 and the Nasdaq.

After spending some time in the early pre-market in the red, we’re up again so far this morning: +17 points on the Dow, +3 on the S&P 500, +35 on the Nasdaq and +2 on the Russell. Bond yields are slowly creeping higher, with the 10-year back up to late September levels and the 2-year up to where it was in late August. The 10-year, by the way, at +4.17% is precisely where the current Fed funds rate is: 4.00-4.25%.

The narrative is for more interest rate cuts from the Fed through the end of the year. Two more 25 basis-point (bps) cuts by the holidays would bring us to 3.50-3.75%, where we haven’t been for years. Yet the Inflation Rate is also creeping higher based partly on the manifestation of tariff initiatives, and lower rates will likely serve to further remove the lid on inflation going forward. Compound this with jobs growth at their weakest levels since the Covid pandemic.
 

OpenAI Deals Keeping Markets Buoyant

Meanwhile, privately owned OpenAI — Sam Altman’s well-known AI services provider and parent of the widely used ChatGPT — continues to grab headlines with the ongoing buildout of its massive Stargate data center project. Yesterday, the company announced a huge deal with AMD AMD, to provide up to 6 gig of GPU chips for AI infrastructure development.

Last month, OpenAI announced a complex development relationship between Oracle ORCL and GPU leader NVIDIA NVDA worth a few more hundred billion dollars. The money is apparently real and the buildout has a plan, so these are not speculative investments. But how much can OpenAI front-run its Stargate project, and how much more money can it borrow to finance these things in the near term?

Answers to the vital questions of this project — and AI infrastructure development, in general — are better left to more learned analysts, like Zacks Senior Analyst Kevin Cook, but these frequency of these build-out announcements are begging the question whether this market-driving force is getting a little ahead of itself. And because it’s powering this latest record run in the market indexes, it’s a question that feels important to ask.

Business 101 tells you that trees don’t grow infinitely to the sky, meaning even the strongest growth trajectories eventually have limitations. Seems like a good time to keep this in mind.

From one aspect, OpenAI making the big moves it has so far is a good way to build a lead in the AI arms race. If OpenAI were to go public tomorrow, it would likely draw a market capitalization north of $500 BILLION. But just because one company is securing up to $1 trillion in AI development does not mean market indexes will grow infinitely to the sky as a result.

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This article originally published on Zacks Investment Research (zacks.com).

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