AI Mega-Caps Power Rally: Growth Positioning for November 2025

The market rally kept rolling in November, marking its longest six-month streak since 2021. This momentum came despite stretched global valuations, fueled by falling short-term rates from Fed cuts and surprisingly strong Q3 earnings growth across tech, financials, and consumer discretionary sectors. The Nasdaq led the charge early in the month after the central bank slashed rates by 25 basis points. But the rally wasn't broad-based. It was dominated by just six U.S. AI mega-caps-Alphabet, Nvidia, Apple, Broadcom, Tesla, and Amazon-whose combined market value jumped by a staggering $3.1 trillion, equivalent to adding thirty-one $100 billion companies. This intense concentration raised questions about sustainability, especially as tech stocks faced a significant sell-off later in November amid scrutiny over AI investment returns. While asset allocators stayed overweight on equities, they were diversifying more heavily into bonds and alternatives to manage the risk. Importantly, signs of widespread retail investor euphoria seemed muted; buying activity and fund flows remained notably below the $1.2 trillion peak seen during the 2021 surge. This suggested the rally wasn't yet driven by pure frenzy, leaving room for further AI-driven gains if productivity benefits materialize as hoped.

US equities remain stretched despite a six-month rally, with AI mega-caps like Alphabet, Nvidia, and Apple driving a $3.1 trillion surge in collective valuations during November alone. This market concentration has pushed the S&P 500 to a mere 2% discount to its estimated fair value, reflecting intense investor optimism around artificial intelligence infrastructure spending. Meanwhile, smaller companies and traditional sectors like communications and real estate offer stark contrast, trading at significant 16% discounts that suggest potential opportunity amid the broader stretch.

Amid this divergence, November delivered mixed signals as tech stocks initially powered early gains following a Fed rate cut before driving a sharper mid-month sell-off, fueled partly by growing scrutiny over the actual profitability of AI investments. This volatility unfolded against a backdrop of increasing policy uncertainty, amplified by delayed economic data due to the government shutdown which postponed crucial updates on growth and inflation through much of the month. The combination of concentrated mega-cap strength, deeper undervaluation elsewhere, and heightened policy noise creates a complex landscape for investors navigating the latter stages of this prolonged rally.

U.S. markets have just staged a modest rally, lifted by easing U.S.-China tensions and a quarter-point Fed rate cut in October 2025, though underlying uncertainties linger. While gold vaulted above $4,300 an ounce as investors sought safety, the equity advance hints at something deeper. After two years of S&P 500 gains exceeding 25%, Morgan Stanley expects more muted returns in 2025, but warns that a critical shift in artificial intelligence investment could change that trajectory.

. Companies are moving beyond massive capital expenditures to build data centers and train models. Instead, 2026 marks the start of spending focused squarely on deploying AI to boost real-world efficiency and output across industries. This pivot toward productivity-enhancing applications mirrors the late 1990s, when widespread enterprise adoption of personal computing and the internet delivered sustained corporate margin expansion and economic acceleration. If this AI productivity wave takes hold, it could power the current bull market well beyond typical historical patterns, even as investors monitor valuations and signs of overheating. The recent Fed move underscores a supportive backdrop, but the real engine for future gains may lie in how effectively businesses translate AI hype into tangible bottom-line improvements.

The market is shifting gears. After two explosive years of double-digit gains, investors now face a new reality: cautious optimism tempered by lingering trade frictions and evolving central bank policy. But as the dust settles on October's rate cut and November's AI-driven valuation surge, a clear path emerges for those willing to act with conviction. Our "Growth Offensive" stance means focusing on where momentum is building, not just where prices appear cheap. The evidence is converging on several key opportunities that align with our investment philosophy.

First and foremost, the substitution demand activated by artificial intelligence infrastructure is now undeniable and accelerating. The market surge in November alone saw eight of the top ten stocks tied directly to AI, adding $3.1 trillion in valuation as firms aggressively fund future capacity. This isn't just about software; it's translating into massive capital expenditures for physical infrastructure. Monitoring the orders-shipments ratio for pure-play AI infrastructure companies will be crucial-when incoming demand consistently exceeds delivery capacity, it signals strong, sustainable growth phases. Companies demonstrating this pattern deserve increased weight in portfolios.

Simultaneously, the broader market rotation offers attractive entry points in sectors historically sensitive to interest rates and economic cycles. Communications services and real estate remain significantly undervalued compared to their AI-powered peers. This undervaluation, coupled with the Fed's dovish turn in October, creates a favorable environment for these sectors to catch up. Increasing allocations here provides diversification and potential upside as rate cuts stimulate underlying economic activity and consumer spending.

However, this growth offensive isn't immune to macro headwinds. Persistent US-China trade tensions, while easing somewhat according to recent data, remain a key uncertainty that could disrupt supply chains and global sentiment. Furthermore, the surprising strength in October's economic data, noted by the Fed, suggests the central bank's path may be more complex than initially anticipated. Continuous monitoring of both policy shifts and trade developments is essential to navigate potential volatility.

The underlying power of AI adoption provides the strongest rationale. Penetration rates across diverse business sectors are demonstrably rising, moving beyond hype into tangible productivity gains that boost corporate margins. This translates directly into the final, critical pillar: the relentless improvement in the cost/performance ratio of AI solutions. As hardware becomes more efficient and software more powerful, AI adoption becomes economically inevitable for more businesses, driving substitution across industries. This virtuous cycle should continue fueling earnings growth and market participation.

In summary, our strategy prioritizes: 1) Adding to positions in companies with proven AI infrastructure demand and strong order books, 2) Increasing exposure to undervalued communications and real estate, 3) Maintaining vigilance on Fed policy and US-China relations, while leveraging the fundamental, unstoppable tide of rising AI penetration and improving cost/performance economics. The growth trajectory appears intact, and the time for selective entry is now.