February 2026 Update

February, 2026

Remember Newton's Third Law of Motion

"For every action there is an equal and opposite reaction", or maybe it's better thought of as Yin and Yang? The Chinese symbol shows that for every Yin there is a Yang, male and female, light and dark, active and passive, fire and water, sun and moon. These concepts are useful in investing - there are both opportunities and threats often simultaneously. A.I. is both such a threat and an opportunity.

Worrying about Demographics and worrying about A.I. and Robotics is to ignore that one is a solution to the other. You don't have two problems you have a problem and a solution.

Autonomous vehicles are a threat to taxi drivers but will solve for a current shortage of truck drivers and reduce the need for car parks, delivery drivers, congestion, energy usage and transportation costs. Fewer personal cars mean fewer car insurance premiums?

Building out data centres for A.I. is driving commodity prices, electricity prices and cyclical inflation, and investing in A.I. means also investing in mining stocks and rare earths, and btw firms that clean up the environmental degradation caused by mining some of this toxic stuff.

But ultimately A.I. should be deflationary. (Actually, some of the greatest periods of economic growth have coincided with price deflation but that's for another time). The biggest sources of inflation in the US over the last decade have been Health and Education. Both are going to be disrupted by A.I., which should (left alone by politicians) improve output and reduce costs.

Meanwhile, excitement about quantum computing implies the need for an equal focus on Cyber Security as the former will create unprecedented demand for the other. Software is needed but maybe not routine processing software? At some point we may have a 'man vs machine' contest? That is, cyber security will have to be less logically based and more 'creative' or illogical? Nonlinear thinking and intuition or "Poincaré moments" may become very important? Don't give up on that liberal arts (or Geography!) degree.

https://engines.egr.uh.edu/episode/2817

As the wreckage caused by Claude (not Monet) in the Saas space continues, some babies will have been thrown out with the bathwater. In that bathwater there may be opportunities for investors akin to a Eureka moment? (apologies for mixed metaphors - couldn't resist). As prices fall some opportunities abound. We'll be looking.

https://www.milwaukeeindependent.com/explainers/illusion-thinking-apples-study-highlights-advanced-ai-flaws-confusing-verbosity-cognition/

The great Economist Thomas Sowell often refers to 'Stage 1 thinking", the simple layer too often embraced by politicians that takes no account of second order effects. Consequence may, seemingly always, be unintended, but they are rarely unforeseeable. Thus, when looking at evolving themes and sectors we believe it is sometimes important to link them together as one being the stage 2 of the other. You often pay less to participate in the Stage 2 companies as well.

If any industries are immune from or benefit from the 'threats' of A.I. it is those which are hard materials based and not the intangible assets of rote learning or process-based services.

For example, excitement about Quantum computing led to a scramble last year to find stocks (and ETFs) to participate in this new and emerging theme. When looking at a list of stocks, we saw the usual suspects: Microsoft, Nvidia, Alphabet, Honeywell and IBM, but with no Yang moment or 'Eureka' moment to realise that power, materials, water supplies, essential hardware and maintenance would be required. Or not until recently when these industrial stocks started to motor. As we wrote back in the day "Now trust in rust"?

https://www.delftpartners.com/news/views/july-2025-now-trust-in-rust.html

All strategies outperformed in January. Even unhedged for Australian investors, and the A$ rose handily, the strategies were positive. We continue to slowly take the Momentum factor exposure down in the global equity strategies. We got lucky perhaps but own very little exposure to Saas, or consulting firms and remain obdurately underweight concept stocks and overweight the Stage 2 companies. We trimmed Sumitomo Electric Industries, Corning, and started positions in Japan Airport Terminal. The (too) weak Yen and tourist growth will drive revenue at the airport operator/retail company.

Delft Partners February 2026