October started with promise—the S&P 500 hit a fresh record high—but the mood soured quickly. Higher-than-expected inflation and the mounting cost of the AI boom rattled investors, sending stocks tumbling and handing the Nasdaq its worst month since March 2025. Big Tech earnings added to the drama, with Microsoft's stock floating higher and Alphabet suffering its worst day ever. Meanwhile, Anthropic, the creator of Claude, filed for its IPO, revealing explosive revenue growth and staggering losses.
Bonds struggled too: 10- and 30-year US Treasury yields hit 24-year highs before retreating as investors sought safer assets. The Federal Reserve held rates steady as expected, but stubborn inflation and rising oil prices had traders anticipating a December hike. It has not been boring.
That brings us to the task at hand: the Finimize Portfolio update. Every month, we revisit our open ideas, check the results, and consider what's changed. You can follow every trade in the tracker, which has links to every investment case and up-to-date performance stats. Since their launch in October 2024, our ideas have delivered an average annualized return of 19%, beaten a classic 60/40 stocks-and-bonds portfolio by nine percentage points, and posted a 69% “hit rate”—meaning most of our calls made money.
Russell's take: The AI trade divides
October exposed the growing divide in the AI trade: companies with strong balance sheets and reliable profits are looking better, while those relying on borrowed money to finance their ambitions look shakier. Russell, our growth and momentum investor, is sticking with his strongest ideas but keeping a close eye on technical signals.
Microsoft: A pillar of strength
Russell remains bullish on Microsoft. The company's latest results only strengthened his conviction that it's one of the best ways to invest in AI—even if the enormous spending required to build the technology is becoming harder to ignore. Sales and profits exceeded expectations last quarter, and its all-important Azure cloud business grew 48%. Despite pouring billions into AI infrastructure, Microsoft still managed an operating margin of 50%.
That said, the results also highlighted some of the bigger challenges in the wider AI industry. The first is simply getting all that infrastructure built. Microsoft's spending came in below expectations, partly because a third-party provider failed to bring new AI data capacity online on schedule. Demand isn't Microsoft's problem—getting enough computing power is.
The second challenge is paying for it all. Microsoft announced a $25 billion bond offering last month. All kinds of tech companies are looking for outside funding to support their AI ambitions. The difference is that Microsoft can borrow at extremely attractive rates, thanks to its strong credit rating. Smaller, lower-quality companies aren't so lucky. For some, borrowing has become nose-bleedingly expensive.
That's an important distinction when the whole industry is racing to build infrastructure that costs billions upfront. Russell likes Microsoft now because the company isn't just spending on AI—it's already making money from it across cloud computing, workplace software, and enterprise services. That gives it more ways to earn a return on its investment, and more financial firepower to keep going.
Anthropic: A tempting IPO, but caution warranted
Russell is interested in Anthropic's upcoming stock debut as a potential short-term trade, but at a valuation close to $2 trillion, he's not convinced it would make an enticing long-term investment. The Claude creator finally opened its books last month, releasing a 400-page IPO filing ahead of a planned Nasdaq listing under the ticker ANT.
The numbers are stunning. Revenue rocketed by more than 1,300% to $16.3 billion in the first six months of this year, and it turned an operating profit for the first time in the second quarter. But its capex plans are just as striking. Anthropic has committed to spending $800 billion over the next decade. Even with roughly $130 billion on its balance sheet, it'll need plenty more money to fund those ambitions.
The IPO could provide some of that. There's no official listing date yet, but a mid-November debut's been rumored. Trading platform Liquid is pricing Anthropic at a valuation of around $1.88 trillion. That makes Russell a little cautious. There could be an opportunity for a shorter-term trade, especially with index-related buying likely to give the stock a boost in its early weeks. But for a long-term investment, he'd rather own SpaceX, Microsoft, and Nvidia. They stand to benefit from the giant stacks of money Anthropic and its rivals are funnelling into infrastructure, without requiring him to pick which model developer ultimately comes out on top.
Nebius: Saying goodbye
Russell is saying goodbye to Nebius after a nice run. With so many AI worries swirling around, Nebius has had a tough few weeks. While he still believes in the management team and its long-term plans, the investment case has become a lot harder to get behind. Companies that aren't yet profitable and won't generate more cash than they spend for years to come don't have it easy when borrowing money gets this expensive.
Investors have already delivered a pretty clear verdict on this investment. The shares have slid further below the 200-day moving average—a widely watched indicator of a stock's longer-term trend. That's a level Russell takes seriously. It's why, for now at least, he's heading for the sidelines. Sure, he might regret it—but his bigger concern is that the company could deliver another flawless quarter, offer an upbeat outlook for 2027, and still see its shares tumble. That's how worried investors are about the cost of funding.
What it means for investors
October's market action is a reminder that the AI trade is not a monolith. Companies with strong balance sheets and proven profitability—like Microsoft—are better positioned to weather the storm of rising borrowing costs and infrastructure bottlenecks. On the other hand, companies that rely heavily on external funding, like Nebius, face a tougher environment. For everyday investors, the key takeaway is to focus on companies that can fund their AI ambitions without breaking the bank, and to be cautious about high-flying IPOs with sky-high valuations. As always, diversification and a long-term perspective remain your best allies in navigating market turbulence.
