Bottom Line: Productivity Gains
Recent productivity gains could have nothing to do with AI. While the costs of AI are increasing rapidly and organizations are still struggling to convert AI into ENOUGH value to offset increased token costs. This is something we are being asked about. The best way we can think of tracking this concern, for now, is margin sentiment relative to cost sentiment. I.e. what companies are actually saying about costs and margins, and how that relates to margin changes going forward. For now, the bias is still increasing margins. All things equal, that should support AI capex beneficiaries and the Price Momentum factor.
Relevant News: AI Demand Outstripping Supply
Q Earnings season made it clear that AI demand is outstripping supply. At the same time, S&P 1500 margins increased by 1pp relative to expectations. If margins are increasing, particularly for companies using AI the most, that SUGGESTS company level AI productivity gains can continue and AI demand will continue accelerating. As we have highlighted a few times, rapid margin expansion has been a primary driver of the unusually strong corporate earnings performance in 2026.
Things to Watch [Consensus, Results]:
Strategy:
Thinking About Downside Risk to AI Demand Beneficiaries – (HERE)
One way of tracking margin relative to costs sentiment discussion is focusing on what companies are saying about costs and margins. Recently, S&P 1500 cost sentiment has deteriorated (higher costs) for S&P 1500 companies, but S&P 1500 margin sentiment remains at unusually high levels. It is probably fair to assume that investors will accept some increase in costs if margin sentiment remains at unusually high levels. The current level of margin sentiment suggests an INCREASE in margins in 2Q26. Unless margin sentiment declines or actual margins decline, it will be difficult to be short Price Momentum.
Economics
‘25Q4 QCEW: Done with NFP Overcounts – (HERE)
The quarterly census of employment and wages, the comprehensive payroll tax-based source data that ultimately underpins the benchmark revisions to the NFP data and other measures of income and earnings, contained a key positive surprise today. The monthly NFP data seems to no longer be showing any appreciable overcounts after 3+ years and may well see a small upward revision in time with ¾ of the preliminary data in hand now. Given historical patterns of procyclical labor market revisions, this swing towards no more initial overcount is an important data point showing underlying stabilization reassures one lingering doubt about the labor market.
Data Infrastructure/ Commodities:
ECL: CoolIT Demonstrates 15kW Coldplate – (HERE)
CoolIT’s validation of a 15kW cold plate marks a significant advance for single-phase direct-to-chip liquid cooling, extending the technology roadmap well beyond what many viewed as practical limits and reinforcing its viability for next-generation AI accelerators. Given that current AI rack architectures such as GB300 NVL72 appear to operate at roughly ~1kW per primary cold plate, the demonstrated 15kW capability provides substantial thermal headroom and supports the case for a longer runway for single-phase cooling adoption. We continue to view ECL favorably as a beneficiary of accelerating liquid-cooling deployments and AI infrastructure buildouts, with the pending CoolIT acquisition representing a potential catalyst that further strengthens its exposure to these trends.
