In my most recent videos, I’ve emphasized a growing conviction: after nearly three years of contraction, I believe the U.S. manufacturing PMI is poised to move significantly higher, driven not by traditional demand cycles around real estate and autos, but by a new and powerful force: paranoia. Across both governments and corporations, a deepening fear of falling behind in the global AI arms race is reshaping investment priorities. Since Inauguration Day, several geopolitical and economic pressures have converged to amplify this urgency. The escalation of tariffs and renewed scrutiny of industrial policy have exposed the West’s dependency on Chinese-controlled rare earths, critical inputs for AI hardware and energy systems. Meanwhile, the emergence of DeepSeek has made it uncomfortably clear that China may be much closer to AI parity with the U.S. than most had assumed. On top of that, the wars in Ukraine, Russia and the Middle East have reminded the world that modern warfare is no longer about brute force, but technological supremacy and that AI will be at its core. As Marc Andreessen said in a recent A16Z podcast, “The decline in manufacturing wasn’t inevitable, it was a policy choice.” This environment of uncertainty and strategic anxiety is now driving investment at a scale and intensity that I believe will begin showing up in the manufacturing data through a long-overdue rise in PMI. And soon, this paranoia won’t just be confined to the boardrooms or defense departments, it will spread to the workforce, as employees begin to grasp how rapidly AI is reshaping the nature of work and the security of their jobs.
From Doubt to Acceleration
Earlier this year, there were moments of hesitation across markets and boardrooms. The rise of DeepSeek and the escalation of U.S.-China tariffs stoked fears that AI development might stall either due to geopolitical fragmentation or concerns around global growth. Some questioned whether the lofty expectations for AI investment would truly materialize. But instead of slowing, the opposite has occurred. We are now witnessing a broad acceleration in capital expenditure, driven not only by the race for compute but by a dawning realization: without significant investment in energy infrastructure, the AI vision cannot be sustained. Companies are increasingly vocal about constraints in power availability, and the U.S. government has responded in kind. Recent executive orders from the administration have explicitly supported nuclear energy expansion and grid upgrades. Perhaps most notably, at the Pennsylvania Energy & Innovation Summit, where former President Donald Trump headlined the event, over $92 billion in new investment was announced, with broad backing from tech and energy leaders and a sharp focus on funding data centers and power infrastructure. Adding to the urgency, news reports have made it clear that China is significantly ahead of the U.S. in building out electricity supply, further intensifying the pressure to catch up. As Marc Andreessen puts it bluntly, “If you don’t build the factories, the compute, the grid, then you don’t get AI.” Far from peaking, the AI arms race is deepening, and the fear of falling behind is pushing both public and private sectors into action.
A Structural Shift Beneath the PMI
The significance of a rising PMI after nearly three years of sub-50 readings, aside from just two months, goes far beyond a short-term economic rebound. It represents the early stirrings of a broader repositioning. Until now, investor exposure to AI has been concentrated in a narrow slice of the market, led almost exclusively by the Magnificent Seven and obvious beneficiaries in software and cloud. But the scale and direction of what’s coming next, especially the shift toward AI embodiment, will force a dramatic reallocation of capital. We are moving beyond code and into the physical world: autonomous vehicles, humanoid robotics, and a massive data center buildout are all on the near horizon. These trends mark the end of an era dominated by software innovation since the iPhone’s 2007 launch and the beginning of a five-year period where physical infrastructure, especially electricity, takes center stage.
This was powerfully underscored when Marc Andreessen on the podcast declared: “AI is not just about large language models sitting in the cloud. We’re entering the age of embodied AI where intelligence takes physical form. That means robotics, autonomous machines, and real-world infrastructure.” His warning was unambiguous: “If we don’t lead in this domain, we risk a future of foreign-manufactured robots and losing control over core physical systems.” This comment reflects what I believe will be the most important pivot in investor psychology, a realization that AI leadership is not about app development or cloud APIs, but rather about controlling the hardware, energy, and supply chains that bring intelligence into the real world. As Andreessen also notes, “The future of economic power will be built in factories, on manufacturing floors, and inside energy grids.”
Forecasts across the board point to an urgent and sustained need for energy investment. This is happening even as high interest rates continue to weigh on traditional economic sectors like housing, autos, and commercial real estate. Most economists use overweight these sectors in their models for their economic forecasts. Yet unlike those rate-sensitive areas, the AI-driven buildout appears structurally immune to monetary tightening. This divergence will define the next leg of the investment cycle and the next phase of PMI.
Global Confirmation and the Rotation Beneath the Surface
What reinforces this conviction week after week is the increasingly clear global confirmation of the shift underway. In China, the latest industrial production data shows a widening gap between weak fixed asset investment in real estate and retail sales while seeing surging output in future-facing sectors. Year-over-year strength in robotics, lithium batteries, electric vehicles, robotaxis and drones suggests that China’s growth is pivoting toward strategic technologies, positioning it to benefit from the same AI-fueled investment cycle seen in the West. Meanwhile, Europe is undergoing a structural transformation of its own, centered on a massive ramp in military spending. This pivot is beginning to lift forward-looking indicators, with the German ZEW expectations index, historically a leading signal for PMI, recently moving higher. On the corporate front, companies like Legrand and ABB have emphasized in earnings calls the strength of U.S. demand for data center infrastructure. The scale of that demand is striking: U.S. data center construction is already growing at a 40% year-over-year pace, a trend I’ve highlighted in recent videos. As Andreessen warned, “If the U.S. doesn’t take the lead, it risks living in a world of Chinese robots everywhere.” Taken together, these developments suggest that global growth, while still facing drag from housing and commercial real estate, is quietly rotating toward sectors that are central to the AI-industrial buildout. This shift is not cyclical, it’s foundational.
Market Signals Align with a PMI Rebound
Beyond global data and corporate commentary, market-based indicators are also beginning to confirm the thesis that a manufacturing rebound is underway. Historically, a rising PMI has been accompanied by strength in key cyclical assets, and this time is no different. Copper prices and the Kospi both surged to new multi-year highs, signaling a broad rotation into economically sensitive sectors. Meanwhile, the CRB Raw Industrials Index recently hit its highest level since 2022, suggesting real demand is starting to materialize beneath the surface. The dollar has seen its worst start to a year in many decades. A weaker dollar historically leads to PMI bounces as global liquidity expands. Yield curves, too, have begun to steepen. While many attribute this to concerns over ballooning government deficits, it is also a classic market signal of reaccelerating growth and modestly higher inflation expectations. Politically, even rhetoric is shifting. After initially emphasizing fiscal restraint and spending cuts, the Trump administration has recently pivoted toward a more expansionary tone. The “one big beautiful bill” signals renewed openness to investment-led growth. As Scott Bessent recently posted on X, “We can both grow the economy and control the debt. What is important is that the economy grows faster than the debt. If we change the growth trajectory of the country, of the economy, then we will stabilize our finances and grow our way out of this.” Now the pressure is being applied to Fed Chairman Powell to at the same time lower rates. These crosscurrents, all pointing toward reflation, are exactly what tends to precede a sustained upturn in manufacturing activity.
From Cyclical Blip to Secular Regime Shift
What makes this moment so important is that the underlying shift in PMI should not be interpreted as merely cyclical. Once investors begin to recognize that this is not just about near-term stimulus or post-pandemic normalization but instead about a long-duration investment cycle tied to AI, military modernization, and the path to AGI, the narrative will change. This is the beginning of a secular shift. The road to artificial general intelligence is expected to take at least four to five years, and it doesn’t end there. What follows is an era of embodied intelligence, where humanoid robots, autonomous systems, and next-generation infrastructure redefine entire industries. As Marc Andreessen sharply put it: “This shift isn’t about software eating the world, it’s about machines eating the world.” That timeline alone demands sustained capital expenditure unlike anything seen in recent cycles. Meanwhile, many commodity-linked companies saw sharp earnings downgrades earlier this year due to tariff fears, setting the stage for positive surprises if the investment story reaccelerates. This creates fertile ground not only for discretionary investors but for quant strategies that react to revision momentum. Positioning has been heavily skewed toward services and software for over a decade. But now, as the AI narrative expands beyond code into physical infrastructure, commodities, industrials, and hardware are poised to become the structural winners of this new era.
A New Growth Paradigm
The prolonged weakness in the PMI over the past several years has largely been the result of deep macro uncertainty, first from the aggressive rise in interest rates, and more recently from the geopolitical volatility surrounding tariffs and trade. But we now stand at the edge of a very different reality. Unlike the dot-com era, this is not a speculative bubble built on unproven demand financed with debt. The compute is real, the applications are scaling, the infrastructure is being stretched and the financing is coming due to paranoia around military supremacy at the country level and obsolescence from the hyperscalers. The world was simply not prepared for the electricity, hardware, and commodity needs of the AI revolution. Years of underinvestment in these areas are now meeting an accelerating wave of AI demand, as evidenced by earnings reports and rising input prices across key sectors. These kinds of macro regime shifts don’t happen often, the last one followed the global financial crisis and was defined by the iPhone, the rise of software, and the migration to a virtual economy. What lies ahead is the opposite: a return to physicality, as the embodiment era of AI takes hold. As Andreessen remarked, we need to “build what Elon calls ‘alien dreadnought’ factories”, hyper-automated, next-generation production hubs. As each quarter passes, this shift will become less about chasing generic growth and more about preparing for a specific kind of growth, one rooted in power, materials, machines, and scale. The investments tied to this transition are not a passing trade. They are likely to define the next chapter of the global economy.
