Weekly Market Pulse: The Turning Point? – Alhambra Investments

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Weekly Market Pulse: The Turning Point?

Weekly Market Pulse: The Turning Point?<br>By Joseph Y. Calhoun III|2026-06-01T09:26:47-04:00May 31st, 2026|Alhambra Research, Economy, Markets, Newsletter, Stocks|

Nicholas Mutton / A fork in the road

The future is already here – it’s just not evenly distributed.

– William Gibson, author of Neuromancer

Those who cannot remember the past are condemned to repeat it.

– George Santayana, The Life of Reason

We are in the midst of an unprecedented boom. A technological revolution that will change everything. As a certain former and current president might say, like nothing anyone has ever seen before. AI has certainly changed things since ChatGPT was released in November 2022. By the end of this year, we will have spent roughly $2 trillion on AI infrastructure in four years. AI spending is tracking at over 1% of global GDP and roughly 2–2.5% of US GDP. Large numbers, no question.

But unprecedented?

Unequivocally no. The US railroad boom in the second half of the 19th century was actually quite a bit larger as a percentage of GDP. Railroad investment averaged 2–3% of GDP throughout the boom, with the peak from about 1868 to 1873 approaching 6% of GDP — at one point representing roughly 20% of all capital formation in the country. Total AI spending today, even at 14% of non-residential investment, isn’t close. So no, this isn’t unprecedented. The only difference is the nature of the technology. In both cases, the expectation was a large increase in productivity and the railroad boom did transform the US economy — just not fast enough to save the early investors. Will AI turn out the same?

The railroad boom was fed by several independent developments: the steam engine, the canal boom, and eventually the Bessemer process, patented in 1856, which dropped the price of steel by roughly 80% and allowed railroads to replace brittle iron track with something that could actually support large locomotives and freight cars. The financial infrastructure to support the rail boom was a byproduct of the canal boom that preceded it: largely debt financing, funded globally.

That boom also produced two busts — 1873 and 1893. In both cases, roughly a quarter of all railroads ended up in bankruptcy. The first was triggered by the collapse of Jay Cooke & Co., one of the earliest and most prolific financiers of the expansion. The NYSE closed for ten days and the ensuring depression – known as the Great Depression until the one in the 1930s took that crown – lasted until 1879. The Panic of 1893 was a different animal — a credit crunch triggered by a shortage of gold, ultimately resolved only by a $65 million gold loan from J.P. Morgan to the US government. The railroad bust was collateral damage; the credit crunch was deadly for highly indebted railroads.

The technology of AI can seem like magic, which makes comparing it to 19th century railroads feel almost silly. But the parallels are numerous, and this pattern has repeated itself many times — from the South Sea Bubble to canal mania to the panics of 1825 and 1837, right through to modern times. Each transformative technology or financial innovation follows a similar arc*:

The Installation Period, driven by financial capital and speculation. This divides into the Irruption phase (the technology breaks out) and the Frenzy phase (everyone throws money at it, afraid of missing out).

The Turning Point, where a massive structural mismatch occurs: the infrastructure has been overbuilt, but actual applications haven’t caught up to generate a clear return on investment. This almost always results in a crash or significant correction — see the dot-com boom/bust.

The Deployment Period, where the technology enters its Synergy and Maturity phases. Production capital takes over. The technology becomes cheap, ubiquitous, and deeply integrated into the institutional fabric of society, finally delivering on its productivity promises.

We’ve seen this with canals, railroads, telegraphs, automobiles, electricity, semiconductors, PCs, biotech, the internet, shale oil, and crypto.

And now AI.

Where Is AI In This Cycle?

I think we are nearing the end of the Frenzy phase and approaching the Turning Point.  The Big Tech hyperscalers allocated roughly $342 billion to capital expenditure in 2025, and projections for AI-related CapEx put annual spending in 2026 well north of $500 billion—with some models tracking closer to $700 billion+ as companies race to build next-generation data centers, secure power grids, and buy up advanced silicon.

However, a structural divergence has now emerged between the retail consumer of AI and the corporate, with cost driving the difference. While consumers have embraced AI tools at a spectacular rate, most of it remains...