Hi James Pierpoint!

Looking beneath the surface of the broader AI infrastructure portfolio (as of May 27, 2026), the signal reveals several nuanced drivers that go well beyond the generic “AI hype” or standard momentum trades that have driven the memory chip names.

By analyzing the underlying features driving top weights like NVIDIA, Taiwan Semiconductor (TSMC), Apple, and Microsoft, the model is currently demonstrating three distinct thematic preferences:

1. A Strong Penalty on Volatility

The single most prominent theme driving the AI forecast across the AI infrastructure stack is a severe penalty on volatility. The model shows strongly negative correlations with 1-year and 3-year downside volatility, as well as recent realized volatility. Even within the high-growth sector, the AI is aggressively punishing volatile, speculative names in favor of the most stable, mature entities.

2. Rewarding the “Cash Cows” (Quality & Value)

Rather than emphasizing raw revenue growth, the AI engine is leaning heavily into Quality and Value. It wants companies generating and returning massive amounts of cash today:

• Operational Efficiency: a strong preference for high EBIT Margins, EBIT Return on Assets (ROA), and Cash Flow to Assets.
• Capital Return: interestingly for a growth sector, it seeks Value metrics — positive correlations with Buyback Yield, Dividend Yield and Earnings Yield, alongside high fundamental health (F-Scores).

3. Scale & Idiosyncratic Momentum

• Scale Matters: a clear preference for absolute size (market cap), recognizing the immense financial barriers to entry for advanced AI.
• Idiosyncratic Strength: while standard price momentum is mixed, the engine favors 3-, 6- and 12-month residual momentum — outperformance specific to a company’s own execution, not just riding the sector tide.

The Market Context: these preferences align with the macro backdrop. With hyperscalers on track to spend immense amounts on capex, the engine favors the massive, entrenched incumbents whose deep moats let them convert that spending into exceptional margins and shareholder returns — while explicitly avoiding the volatility of smaller downstream players.