Seizing the Growth Opportunities of AI Transformation

Matt Freund, CFA,  Michael Kassab, CFA

Summary Points:

• We see continued upside for US growth stocks, supported by continued economic expansion, declining interest rates, and earnings momentum.
• Calamos Growth Fund (CGRIX) is invested in a breadth of fundamentally strong companies at the forefront of secular themes, including companies from multiple layers of the artificial intelligence (AI) ecosystem.
• While our outlook remains constructive, we remain committed to risk management, supported by a disciplined, valuation-conscious approach.

The US equity markets continued to rebound from their April lows and generated strong gains in the third quarter, demonstrating remarkable resilience in the face of persistent uncertainties. While growth sectors led the recovery, gains were broad-based, as concerns about tariffs and economic conditions continued to fade.

The quarter began with the passage of the Administration’s landmark tax legislation, which made existing tax rates permanent, added new individual tax credits, and provided incentives for capital investment in the United States. Tariff-related inflation fears proved overstated as supply chains adjusted and absorbed much of the cost increases. While the economy continued to grow at a healthy pace, labor market softening provided the Federal Reserve room to begin reducing short-term interest rates. Consequently, rates declined across the yield curve.

Looking ahead, we believe markets are appropriately pricing in an improving earnings outlook. We expect fiscal support will strengthen through 2026 as consumers benefit from higher tax refunds and reduced withholding rates. At the same time, we view market expectations for additional rate cuts as reasonable and expect short-term rates to move toward 3% over the next 12 to 18 months.

From an investment standpoint, we continue to believe artificial intelligence (AI) represents one of the most significant investment opportunities of this decade, with the potential to drive productivity gains across the entire economy. As the market transitions from pure infrastructure buildout to identifying companies that can monetize AI capabilities, we see compelling opportunities emerging across multiple layers of the AI ecosystem. Beyond the established infrastructure providers, we’re identifying promising investments in AI-enabled software platforms, companies leveraging AI for operational efficiency, and businesses that can demonstrate sustainable competitive advantages through proprietary data and models. We’re particularly focused on companies showing tangible returns on AI investments through revenue acceleration, margin expansion, or market share gains rather than those simply benefiting from the capital expenditure cycle.

The combination of positive GDP growth, declining interest rates, and earnings momentum should create a supportive backdrop for risk assets. However, while our outlook for US equities remains favorable—supported by genuine innovation and economic resilience—we remain mindful of key risks. These include a potential reacceleration of inflation that could pause Fed rate cuts, slower-than-expected consumer spending if labor market softness persists, and the possibility that AI monetization timelines extend longer than current market expectations.

Given the extended rally, we are committed to maintaining a disciplined, risk-managed approach to growth investing, focusing on quality companies with reasonable valuations and visible earnings catalysts. We expect market leadership to broaden as AI benefits flow through to margins across sectors, cyclical stocks gain momentum, and out-of-favor areas (like healthcare) regain investor interest. As always, our commitment to prudent portfolio management means staying vigilant, diversified, and focused on balancing risks and opportunities.