US Investment Strategy Outlook: H2 2025

Executive Summary:
Entering the second half of 2025, the global economy is expected to face moderating growth, yet the US market still presents structural investment opportunities. The rapid development of Artificial Intelligence (AI) technology, especially the emergence of AI Agents, is driving a shift in investment focus from computing power hardware to the application and inference layers, bringing new growth points to the US stock market. However, the increasingly severe US fiscal situation, persistently high real interest rates, escalating geopolitical risks, and the disruption of global trade by tariff policies collectively constitute the main sources of market volatility. US Dollar assets face systemic revaluation pressures, while the long-term investment value of safe-haven assets like gold is becoming increasingly prominent. This report aims to provide investors with a macroeconomic outlook, in-depth analysis of various asset classes, and investment strategy recommendations for the US market in H2 2025.

Core Investment Views:

• US Equities: The market will present structural opportunities. The overall market strength is expected to be weaker than in the previous two years, with AI application and inference layers being the main themes. Driven by AI Agents, software, workflow automation, data infrastructure, and specific chip sectors are expected to perform strongly.
• US Fixed Income: Fiscal pressures and persistently high real interest rates will keep US bond yields elevated. We recommend an underweight allocation to debt assets.
• Crude Oil: Geopolitical risks (especially the Middle East situation) will be the primary short-term price driver, potentially overriding expectations of fundamental weakness and leading to increased price volatility.
• Gold: Supported by the global "de-dollarization" trend and safe-haven demand, gold's long-term value as a store of wealth is becoming more prominent.
• US Dollar: Faces structural weakening pressure. We recommend monitoring the potential downward trend of the US Dollar against major currencies.
• Key Risk Factors: Economic growth falling short of expectations, persistently high inflation, Federal Reserve policy missteps, US fiscal crisis, escalating geopolitical conflicts, and disruptive impacts from AI technology development.

Macroeconomic Outlook - H2 2025

In the second half of 2025, global economic growth is projected to slow down, with major economies gradually returning to a normalized growth path after their post-pandemic recovery phases. While the US economy faces the challenge of depleted excess savings, its resilience remains, with the main growth driver shifting from consumption to investment. Particularly noteworthy is AI-related investment, such as data centers and power infrastructure construction, which is emerging as a new growth highlight, signaling a structural transformation in the economic growth model. US real GDP growth is estimated to decelerate significantly in 2025, projected to be between 1.25%-1.5%.

Inflation Outlook and "Greedflation":

Inflation stickiness remains a key market concern. Although recent data indicates some moderation in inflation, service sector inflation, tight labor market conditions, and the potential impact of geopolitics on supply chains could keep inflation at elevated levels. The lagged effect of tariff policies on inflation also needs close monitoring. Notably, some analyses suggest that certain retailers successfully expanded their profit margins during the pandemic, and this "greedflation" phenomenon may persist. For instance, large retailers have issued warnings, indicating potential price increases in the coming months due to tariff policies, which means upcoming inflation data could again surprise to the upside, influencing the Federal Reserve's policy path.

Monetary Policy (Federal Reserve) and Interest Rate Environment:

Facing a complex economic landscape, the Federal Reserve is expected to maintain a cautious monetary policy stance, deciding its next steps after observing market reactions. Market consensus anticipates 1-2 rate cuts in 2025, with the federal funds rate likely ending the year around 3.75%. However, a significant challenge is the persistently high real interest rates. This high-interest-rate environment not only increases financing costs for businesses and the government but also could exert continuous pressure on market liquidity and risk asset valuations.

Labor Market:

The US labor market remains tight, with low unemployment rates and wage growth trends significantly influencing inflation and consumer spending. Despite some signs of marginal easing, its overall health remains a critical indicator for the Federal Reserve in assessing overheating risks.

US Fiscal Situation and Dominance:

The US fiscal situation is emerging as a major structural risk at the macroeconomic level. Currently, the US fiscal deficit and debt-to-GDP ratio have reached their highest levels outside of crisis periods. Potential fiscal legislation (e.g., the "One Big Beautiful Bill Act") could further exacerbate the deficit. Coupled with persistently high real interest rates, debt interest payments have for the first time exceeded defense spending, a phenomenon some historians view as a challenge to great power status. Market commentary suggests that the US fiscal situation is heading towards an unsustainable point, potentially triggering a crisis within the next 4-5 years, which could involve surging inflation, economic shocks, or financial repression. This concern is not unfounded; historical experience shows that when debt burdens reach a certain level without effective resolution mechanisms, market confidence can waver, leading to chain reactions. Recent significant fluctuations in long-term bond markets in Japan and the UK are also seen as signals from the macroeconomic system regarding debt sustainability risks.

Geopolitical and Policy Risks:

Global geopolitical tensions continue to escalate, particularly conflicts in the Middle East, intensifying market uncertainty. Furthermore, domestic US politics, such as the upcoming elections and congressional debates over tax legislation, could introduce additional market volatility. These uncertainties not only affect investor sentiment but also have profound implications for global supply chains and trade patterns.

Asset Class Analysis:

1. US Equities/Stocks:

Overall Market Outlook:

In the second half of 2025, the US stock market is expected to shift from the broad-based gains seen in the past few years, often termed "American exceptionalism," towards a more selective phase emphasizing "structural opportunities." Although the US stock market has recently rebounded, some views suggest this might offer overseas institutional investors, who were heavily weighted in US assets, a good opportunity to reduce their holdings, indicating potential adjustment pressure on US dollar assets. Notably, mainstream investors are increasingly concerned about debt sustainability, yet US equities have remained robust since "Liberation Day," showing a clear divergence. We believe the market is discounting the potential for AI to boost productivity, offsetting fiscal concerns. From a valuation perspective, the current cost-effectiveness of valuations is significantly lower than at the beginning of 2023. Amidst high global macroeconomic uncertainty, it will be challenging for the broader market to maintain the impressive performance of the past two years, with structural opportunities being more prevalent.

Core Investment Logic:

We believe that the core investment logic for US equities in the second half of 2025 will revolve around the deep evolution of Artificial Intelligence (AI) technology. The market's focus is gradually shifting from pure AI computing power hardware investments to the broader AI application and inference layers. This implies that companies capable of translating AI capabilities into practical applications, enhancing efficiency, and creating new business models will become the new growth engines.

Industry and Theme Analysis:

• Artificial Intelligence (AI) Investment Evolution: 
  The Rise and Application of AI Agents: The emergence of AI Agents marks a new phase in the software industry. These software programs, capable of autonomously understanding and interacting with their environment, collecting data, executing tasks, and learning from experience, are changing the traditional human-centric assumption of software. This enables AI to directly execute tasks and make decisions, which will not only significantly enhance automation, productivity, and efficiency but also force the software industry to redefine application architectures and business models.
  Market Size and Value Accumulation: The AI Agent market holds immense potential. Estimates suggest that the narrow-scope AI-powered automation market will reach $20 billion by 2028, while the broader process automation market is projected to reach $102 billion by 2028. In the long term, AI Agent technology could even penetrate the entire application software market (currently valued at approximately $637 billion).
  Value accumulation is primarily expected in the following key areas: 
  Hyperscalers/AI Infrastructure Providers: As core providers of computing, network, and storage resources required for AI Agent operations, they offer not only infrastructure but also data retrieval, security, and governance capabilities.
  AI Model Providers: By continuously enhancing the reasoning and intelligence capabilities of models, they will make AI Agents more powerful and have the opportunity to expand their business into the application platform layer.
  Security & Governance: With the widespread deployment of AI Agents, ensuring their trustworthiness, accuracy, and security becomes paramount, creating significant business opportunities for cybersecurity and governance solutions.
  Data Infrastructure: The effectiveness of AI Agents heavily relies on access to high-quality, governable data. Data infrastructure providers play a crucial role in modernizing client data assets and enabling real-time information retrieval.
  Workflow Automation: Embedding AI Agents into workflow automation platforms enables more comprehensive automation of unstructured business processes, improving enterprise operational efficiency.
  AI Lifecycle Platforms: These platforms automate the development and deployment processes of AI applications, including data pipeline construction, model integration, and evaluation.
  Inference Era and Chip Selection: Recent advancements indicate that AI performance improvements are not solely dependent on brute-force computing power. For example, optimization of models like DeepSeek-R1 (with DeepSeek-R2 soon to be released) demonstrates that significant breakthroughs can also be achieved through improved model architectures and algorithms. We believe 2025 will usher in the "AI Inference Dominant Era." In this context, ASIC (Application-Specific Integrated Circuit) chips, with their superior energy efficiency and cost advantages in AI inference tasks, are expected to gain market share, challenging the dominance of traditional GPUs (Graphics Processing Units) in certain AI applications.
  Application Layer Boom: As AI inference costs continue to decrease, AI models will be more widely deployed across various applications. We anticipate that consumer-facing (B2C) AI applications will garner more market attention and investment interest than business-facing (B2B) solutions. Furthermore, edge AI products, such as smart glasses, headphones, and smartphones, will also benefit from AI model integration, enhancing user experience and product value.
  Autonomous Driving and Robotics: 
  Autonomous Driving: The commercialization process of L3/L4 autonomous driving technology is accelerating, with automakers potentially achieving new revenue growth through subscription-based models (e.g., Tesla's FSD). Related supply chain companies, such as LiDAR manufacturers, will also benefit from the increasing content value of LiDAR in Advanced Driver-Assistance Systems (ADAS). The integration of AI Agents will further lower implementation barriers for autonomous driving.
  Humanoid Robotics: With technological breakthroughs and decreasing costs, humanoid robots are expected to enter their "foundational year" for commercialization in 2025. They hold immense potential for applications in industrial manufacturing and service sectors, with companies like Tesla, ABB, and Amazon actively investing. The principles of AI Agents also apply to humanoid robots, enabling them to intelligently perform complex tasks.
• Other Industry Insights (Based on Latest Market Research): 

Technology Sector: The visibility of generative AI themes has significantly increased, with executives from major tech companies generally optimistic about demand prospects for 2026 and beyond. However, the rising enthusiasm for AI investments could indirectly lead to a short-term cooling of sentiment in the software sector. For instance, tracking data shows that growth-oriented software/semiconductor pair strategies have seen a significant pullback in June, reminding investors to be wary of short-term market sentiment fluctuations.

Healthcare Sector: Continues to benefit from improving sentiment in biotechnology, pharmaceuticals, and related R&D-driven areas. Recent major industry conferences (e.g., ASCO conference) and constructive dialogues between pharmaceutical executives and government agencies on policy, coupled with positive clinical trial data, M&A activities, and normalization of FDA approval processes, are collectively driving this sector's outperformance.

Energy Sector: This week, investor focus primarily revolved around the evolving crude oil macro landscape amidst escalating Iran/Israel tensions, leading to significant price increases for Brent and WTI crude. However, investors generally remain cautious about the crude oil fundamentals for H2 2025, anticipating more supply coming online and continued demand weakness. Therefore, current price action is largely driven by headlines, with geopolitical risk premium being the key support for oil prices.

Industrial Sector: This sector saw the highest net buying this week and leads in net buying year-to-date. Sub-sectors like construction, transportation, and chemicals are performing strongly. However, it's worth noting that long positions in aviation and data center-related industrial stocks might be overly crowded, leading to underperformance in the short term.

Consumer Sector: Overall performance has been relatively stable. However, crude oil price volatility and geopolitical tensions are putting pressure on the travel and leisure sector (especially cruise lines).

• Key individual stocks to watch:
  Based on the analysis above, we recommend investors focus on the following stocks with structural growth potential in AI, autonomous driving, and related fields:
  • Broadcom (AVGO): As a leading designer and manufacturer of ASIC chips, Broadcom holds a significant advantage in AI inference tasks. As the focus of AI applications shifts from training to inference, its ASIC solutions are poised to gain more market share, challenging traditional GPUs.
  • Snowflake (SNOW): As a cloud data platform leader, Snowflake plays a crucial data infrastructure role in the AI era. Its platform can store and analyze massive amounts of data and integrate AI capabilities, supporting clients in building and deploying AI models, making it a cornerstone for AI application deployment.
  • ServiceNow (NOW): A leading enterprise workflow automation platform actively integrating AI into its solutions to automate IT services, customer service, and business processes. Its AI-driven tools can significantly enhance enterprise efficiency, benefiting from the widespread adoption of AI Agents in enterprise applications.
  • XPeng (XPEV): Has made significant progress in autonomous driving technology, with its XNGP system widely adopted in major Chinese cities. Strategic partnerships with Volkswagen and increasing delivery numbers position it as a key player in smart electric vehicles, likely benefiting from the popularization of autonomous driving subscription services.
  • Hesai Technology (HSAI): As a globally leading LiDAR manufacturer, Hesai benefits from the increasing content value of LiDAR in Advanced Driver-Assistance Systems (ADAS). As autonomous driving advances to higher levels, LiDAR integration will become more common. Hesai, with its cost-effective and high-performance solutions, is well-positioned to capture this market opportunity.
  • Pony.ai: As a global leader in autonomous driving, Pony.ai has demonstrated outstanding performance in technology R&D and commercialization, particularly with deep roots and extensive operational experience in the Chinese market. Its full-stack autonomous driving solutions, including Robotaxi and Robotruck, make it a potential key stock to closely watch in the autonomous driving theme.

AI Agent-Related Beneficiaries (Based on market analyst views, for observation or in-depth analysis): 

• Hyperscalers: Microsoft (MSFT), Amazon (AMZN), Google (GOOGL), etc. As core AI infrastructure providers, they will continue to benefit from the massive demand for computing power generated by AI Agents.
• SaaS Platforms: Salesforce (CRM), HubSpot (HUBS), etc. By embedding AI Agent capabilities into their existing platforms, they offer clients smarter, more automated services, thereby enhancing product value and user stickiness.
• AI Lifecycle Platforms: Palantir (PLTR), etc. Their platforms support enterprises in building, deploying, and managing AI Agents, enabling intelligent decision-making and automation in complex data environments.

"Magnificent Seven (MAG7)" Special Analysis:
The "Magnificent Seven" (MAG7) – comprising Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), NVIDIA (NVDA), Meta Platforms (META), and Tesla (TSLA) – are dominant forces in the US stock market, and their performance and outlook are highly scrutinized by investors. These companies are not only at the forefront of technological innovation but also core beneficiaries of the AI wave. However, in the current market environment, their analysis requires a more nuanced assessment, including their AI drivers, market sentiment, valuations, and controversies.

• Meta Platforms (META):

AI Drivers: Meta has made significant investments in AI, particularly in AI infrastructure, recommendation systems, and AI applications for the metaverse. Its AI technology is progressively integrated into advertising, content distribution, and new product development to enhance user experience and revenue efficiency.

Market Sentiment and Controversy: Investors generally believe Meta has no revenue concerns or structural risks. Trading at around 26x P/E, its overall valuation is not high, leaving ample room for valuation upside and EPS growth. The market is optimistic about its long-term potential in AI.

• NVIDIA (NVDA):

AI Drivers: NVIDIA is the undisputed leader in AI chips, with its GPUs dominating the AI training market, making it the most direct and core beneficiary of the current explosive AI growth. As AI Agents and inference demands grow, its chip solutions will remain indispensable infrastructure.

Market Sentiment and Controversy: While the "extreme bullish" sentiment has somewhat moderated, its ecosystem advantage remains significant even in the face of potential challenges from alternative solutions like ASICs.

• Microsoft (MSFT):

AI Drivers: Microsoft deeply integrates AI into its core businesses through Azure cloud services, Microsoft 365 Copilot, and other products. As a hyperscaler and AI Agent infrastructure provider, Microsoft holds unique advantages in enterprise AI applications and productivity tools.
Market Sentiment and Controversy: We believe Microsoft has some positive expectation gap. Microsoft has largely completed its AI industry full-chain layout, relying on advanced AI models (OPENAI), Azure infrastructure, and powerful application software (Copilot) to achieve a leading position in AI, while its current valuation is not high.

• Amazon (AMZN):

AI Drivers: Amazon's AI drivers are primarily evident in AWS cloud services and AI applications within its retail business. AWS, as a leading cloud infrastructure provider, is a critical platform for running AI Agents and large models. Simultaneously, AI applications in retail, logistics, and smart voice assistants (Alexa) continue to deepen.

Market Sentiment and Controversy: Market discussions have shifted from retail operations and tariff impacts to AWS, which is considered a more critical performance indicator for Amazon in the AI race. Investors are generally focused on AWS's growth potential and market share in the AI era, and its ability to continuously support AI innovation.

• Alphabet (Google, GOOGL):

AI Drivers: Alphabet is a pioneer in AI research and application, with AI technology widely used in search, advertising, cloud services (Google Cloud), and autonomous driving (Waymo). The launch of large language models like Gemini further solidifies its competitiveness in the AI model layer.

Market Sentiment and Controversy: Despite Google's leading position in AI, particularly in large models, the impact of AI search on the core search business model remains a key market concern.

• Apple (AAPL):

AI Drivers: Apple's AI strategy primarily focuses on on-device AI (Edge AI) and personalized experiences while prioritizing user privacy. With the popularization of AI Agents, AI integration into terminals like smartphones and wearables will be a significant direction.

Market Sentiment and Controversy: Apple's current valuation offers no advantage, and it is also affected by tariff policies on costs. Its overall AI imagination space is not as large as other companies.

• Tesla (TSLA):

AI Drivers: Tesla's investment logic centers on autonomous driving (FSD), robotics (Optimus), and energy management systems. It trains AI models with vast real-world data, aiming for commercialization of full self-driving and humanoid robots.

Market Sentiment and Controversy: Tesla has ambitious visions in AI and robotics, but the market has concerns about its technology's implementation speed, cost control, and competition from traditional automakers. Its current valuation, in particular, largely relies on emerging businesses for support; if progress falls short of expectations, the stock price could face significant impact.

2. Bonds:

The US bond market in the second half of 2025 will continue to be significantly influenced by the fiscal situation. Currently, the US fiscal deficit and national debt levels are at historical highs, and potential fiscal stimulus measures could further exacerbate this situation. In this context, persistently high real interest rates pose a severe challenge to the government's debt servicing burden. Some analyses suggest that US bond yields may remain elevated, with the possibility of 10-year Treasury yields reaching 5% and 30-year yields reaching 5.5%. This concern is not unfounded; globally, long-term government bonds in Japan and the UK have recently seen significant sell-offs, reflecting widespread market concern over sovereign debt sustainability. The steepening of the US yield curve and market unease during each Treasury auction cycle further confirm that debt sustainability is evolving into a more significant structural risk.

Investment Strategy:

Given the severity of the US fiscal situation and persistently high real interest rates, we recommend investors underweight debt assets, especially long-term government bonds, in their asset allocation. While bonds may gain support from safe-haven demand at times, in the long run, the fiscal pressures and inflation risks they face should not be overlooked. Investors should carefully assess the risks associated with interest-rate-sensitive products.

Risk Factors:
Higher-than-expected inflation, Federal Reserve policy shifts, continued expansion of the fiscal deficit, loss of market confidence in fiscal sustainability, and spillover effects from bond markets in other major economies.

3. Gold:

As a traditional safe-haven asset and store of value, gold will continue to be supported by multiple favorable factors in the second half of 2025, with its long-term allocation value becoming increasingly prominent.

Driving Factors Analysis:

Firstly, the Federal Reserve's anticipated rate cuts will reduce the opportunity cost of holding gold, thereby enhancing its attractiveness. Secondly, the structural weakening pressure on the US Dollar will also provide upside for gold, which is denominated in USD. More importantly, global geopolitical uncertainties, including regional conflicts and trade tensions, continue to fuel market demand for safe havens. Furthermore, the persistent trend of global central banks increasing their gold holdings reflects countries' strategic considerations for asset diversification and "de-dollarization," providing a solid fundamental support for gold prices. This indicates that in a macroeconomic environment facing debt sustainability risks, market preference for non-government-issued "hard assets" is increasing.

Price Outlook:

Under the combined effect of these multiple factors, we expect gold to have further upside potential in the second half of 2025.

Investment Strategy:

We recommend investors overweight physical assets not issued by governments, such as gold, in their asset allocation to hedge against potential inflation risks, currency devaluation risks, and geopolitical uncertainties.

Risk Factors:

A more hawkish-than-expected Federal Reserve, significant US Dollar strengthening, easing geopolitical risks leading to decreased safe-haven demand, and short-term technical corrections.

In the second half of 2025, investors need to closely monitor the following risk factors that could significantly impact global and US markets:

• Economic Growth Falling Short of Expectations: The extent of global economic slowdown might exceed current expectations, especially in an environment of high interest rates and geopolitical uncertainty, which could lead to pressure on corporate earnings and consequently affect stock market performance.
• Persistently High or Resurgent Inflation: Despite the Federal Reserve's efforts to control inflation, the persistence of "greedflation," or spikes in energy and food prices triggered by geopolitical conflicts (e.g., Middle East situation), could lead to stubborn or even resurgent inflation, forcing the Federal Reserve to maintain tight policies or delay rate cuts.
• Federal Reserve Policy Missteps: Any deviation by the Federal Reserve in the pace and magnitude of rate cuts could trigger significant market volatility. Policy adjustments that are too early or too late could have negative impacts on the economy and financial markets.
• US Fiscal Crisis: The massive US fiscal deficit and national debt burden, along with the rising trend of debt interest payments, constitute a long-term structural risk. Once market confidence in US fiscal sustainability wavers, it could lead to concerns about sovereign credit, soaring bond yields, and even financial market turmoil.
• Escalating Geopolitical Conflicts: The Russia-Ukraine conflict, tensions in the Middle East (particularly between Iran and Israel), and trade and technology frictions among major powers could further escalate, disrupting global supply chains, pushing up commodity prices, and damaging investor confidence.
• Disruptive Risks from AI Technology Development: While AI Agents hold immense potential, their large-scale adoption still faces challenges related to accuracy, security, and lack of standardization. If technological development falls short of expectations, or if AI's disruption to existing business models exceeds forecasts, related investments might yield poor returns. Simultaneously, the rapid advancement of AI could also bring socio-economic risks such as structural changes in employment.
• Financial Market Liquidity Tightness: In an environment of high interest rates and escalating geopolitical risks, financial markets may experience liquidity tightness, leading to increased asset price volatility, and traditional asset correlations could break down, complicating portfolio management.

Disclaimer:
The Information presented above is for information purposes only, which shall not be intended as and does not constitute an offer to sell or solicitation for an offer to buy any securities or financial instrument or any advice or recommendation with respect to such securities or other financial instruments or investments. When making a decision about your investments, you should seek the advice of a professional financial adviser and carefully consider whether such investments are suitable for you in light of your own experience, financial position and investment objectives. The firm and its analysts do not have any material interest or conflict of interest with any stocks mentioned in this report.
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