Steady Course Delivers: Maintaining Conviction with AI Innovation and Infrastructure

John Hillenbrand, CPA

Summary Points:

• Our consistent approach—maintaining conviction in AI innovation leaders and infrastructure beneficiaries while employing disciplined risk management—has delivered positive year-to-date results as key themes unfold as anticipated.
• The economy maintains mid-cycle resilience with consumer spending growing 2.5%‒3.0% in real terms, supported by robust capital expenditure in AI infrastructure, reshoring, and broader US infrastructure reinforcement.
• AI adoption has accelerated, with 45% of US businesses now using paid subscriptions, driving unprecedented infrastructure investment, with hyperscaler capex expectations up 30% this year alone.
• We maintain disciplined risk management through convertibles and options strategies; we believe this is particularly important given valuations that increasingly reflect growth expectations extending well into the next decade.
• Policy clarity continues with manageable tariff impacts and anticipated Fed easing, though structural changes in immigration and labor markets warrant monitoring.

As we enter the fourth quarter of 2025, we believe our steady-course approach has continued to be validated. Rather than chasing momentum or dramatically shifting positioning, we’ve maintained focus on our core investment thesis: the transformative power of AI innovation, the critical infrastructure buildout supporting it, the resilience of quality companies, and the value of multi-asset diversification.

We believe this consistency, combined with selective adjustments, has been an important contributor to positive year-to-date performance. Calamos Growth and Income Fund (CGIIX) has gained 15.27% year-to-date through September 30, 2025, surpassing the Morningstar Moderately Aggressive Allocation Category return of 11.08%, as well as the S&P 500 Index return of 14.83%.

Economic Foundation Remains Solid

The US economy continues to demonstrate resilience despite evolving dynamics. Consumer spending maintains momentum at 2.5%‒3.0% real growth, primarily driven by higher-income households, which account for over 40% of total consumption and continue to benefit from wealth effects.

Meanwhile, the infrastructure supercycle continues to accelerate across multiple dimensions. Capital spending remains robust, with hyperscaler capex expectations up over 30% since January, reflecting the massive buildout of AI infrastructure. Simultaneously, reshoring initiatives drive the construction of manufacturing facilities, while federal infrastructure programs support transportation, energy grid modernization, and broadband expansion. This multi-year investment cycle creates opportunities across industrials, materials, and engineering firms while supporting sustained economic growth.

The labor market remains fundamentally healthy despite a moderation in job growth. Immigration policy shifts—with net immigration dropping from 3 million annually in 2022‒2024 to near zero—represent a significant structural change that could tighten labor markets and support wage growth, particularly for construction and infrastructure-related jobs.

AI Transformation: Accelerating Value Creation

The artificial intelligence revolution has entered the deployment phase with clear value creation emerging. Businesses with high AI exposure are rapidly adopting these tools—45% of US businesses now have paid AI subscriptions, predominantly for productivity and coding applications.

AI’s impacts span the Calamos Growth and Income Fund portfolio through enhanced productivity in enterprise applications, emerging direct revenue streams, and margin expansion through AI-optimized operations. Critically, this transformation drives unprecedented infrastructure demand—not just for semiconductors and data centers, but also for power generation, cooling systems, and the broader ecosystem of companies supporting this buildout. While depreciation from massive infrastructure investments will partially offset margin gains, we focus on companies effectively monetizing AI as well as those providing essential infrastructure components.

Consumer Divergence Requires Selectivity

The consumer presents a nuanced picture. Top-quintile earners show the strongest wage growth, reversing post-pandemic compression trends. Combined with wealth appreciation, this cohort drives spending momentum.

Lower-income consumers face headwinds from potential tariff impacts, reduced social support, and restarting student loans, although stronger-than-usual balance sheets provide some cushion. The net impact appears manageable but requires monitoring.

Portfolio Positioning: Proven Themes

Our investment approach emphasizes:

• Technology leadership—companies with clear AI monetization paths, including hyperscalers and software companies, seeing rapid AI-enhanced product adoption
• Infrastructure beneficiaries—firms positioned to benefit from the multi-year infrastructure supercycle, including datacenter REITs, power generation, industrial equipment manufacturers, and engineering companies supporting both AI and traditional infrastructure buildout
• Quality growth—businesses exposed to affluent consumers and those benefiting from secular trends, including housing demand
• Financial strength—banks benefiting from regulatory normalization and yield curve dynamics, particularly those with exposure to infrastructure project financing
• Risk management—convertible securities providing equity participation with downside protection, while options strategies add income and volatility management

Risk Management in Focus

We acknowledge key risks requiring careful monitoring:

• Valuation extremes with market pricing increasingly dependent on growth materializing in 2027 and beyond, while momentum readings echo late-1999
• Execution gaps between AI investment and monetization
• Labor market uncertainty from AI automation and immigration changes
• External factors including trade relationships and credit conditions

Looking Forward with Disciplined Optimism

We believe our steady course has proven its worth through multiple market environments this year. We do not chase momentum; rather, our consistent focus on AI innovation leaders and high-quality companies, through our multi-asset approach, has delivered solid results. The AI revolution remains in its early stages, and companies that successfully navigate this transformation should capture disproportionate value creation.

We maintain our constructive but risk-aware stance. Current valuations increasingly reflect growth expectations extending well into the next decade, demanding continued discipline, but we see no reason to abandon proven themes. Our multi-asset structure, which combines growth equity exposure with convertibles and options overlays, provides flexibility to capture opportunities while managing downside risk. We believe this balanced approach positions Calamos Growth and Income Fund to navigate both near-term volatility and long-term opportunities as the investment landscape continues to evolve.