The AI Equity Update
Issue #5 | August 25, 2025
Welcome to this week's edition! We apply fundamental price-valuation methods together with our proprietary efficiency formulas to evaluate how well each stock works for capital. Using AI as a tool we deliver clear, fact-checked insights into companies across sectors. Each issue highlights valuation ranges, risk profiles, and efficiency ratings so you can navigate the market with discipline and precision.
What You'll Get Every Week
Macro Trends: A snapshot of the big-picture economy and how it impacts stocks.
How to Understand Our Efficiency Score: A simple guide to our trade efficiency ratings.
Stock Evaluations: In-depth looks at 4-5 promising stocks, with actionable plans.
Quick Portfolio Overview: A summary table for at-a-glance reference.
Important Legal Notices and Disclaimers: Key reminders about this content.
Macro Trends
The US economy is showing balanced growth amid cooling inflation, setting a supportive backdrop for AI equities. GDP grew at a solid 3.0% annual rate in Q2 2024, signaling expansion without overheating. Unemployment rose slightly to 4.2% in July, reflecting a resilient labor market. Inflation moderated to 2.7% in July, progressing toward the Fed's 2% target. The federal funds rate remains at 4.25%-4.50%, with potential cuts anticipated if data softens further. The yield curve (10Y-2Y spread) is normalizing at 0.58% after inversion, easing borrowing costs. Credit spreads (high-yield OAS) are low at 2.95%, indicating low default risks. Recent news includes steady growth with no major tariffs or disruptions. Overall, lower rates and stable spreads could boost valuations for growth stocks like AI leaders, reducing discount rates and supporting capex in data centers and tech.
Indicator | Latest Value | Trend | Stock Impact |
|---|---|---|---|
GDP Growth | 3.0% (Q2 2024) | Up from Q1 | Positive; fuels AI demand in expanding economy. |
Unemployment | 4.2% (July 2024) | Slight rise | Supports consumer spending, indirect AI boost. |
Inflation | 2.7% (July 2024) | Downward | Eases pressure; good for tech valuations. |
Fed Funds Rate | 4.25%-4.50% | Unchanged | Potential cuts ahead; lowers costs for AI firms. |
Yield Curve Spread (10Y-2Y) | 0.58% | Improving | Reduces recession fears; aids growth stocks. |
Credit Spreads | 2.95% (HY OAS) | Flat | Low risk; encourages investment in AI infrastructure. |
How to Understand Our Efficiency Score
Our Efficiency Score evaluates how well a trade captures expected returns per unit of risk, factoring in liquidity, convexity, and tail risks. It's scored on a 0-10 scale, where higher means better efficiency for your dollar. We rate stocks and options separately when relevant, focusing on 1-2 year horizons.
Score Range | Rating | Description |
|---|---|---|
0-3 | Poor | Inefficient; avoid due to poor risk-reward. |
3-5 | Weak | Marginal; use only with high conviction. |
5-7 | Fair | Acceptable for balanced portfolios. |
7-9 | Good | Strong efficiency; good for targeted exposure. |
9-10 | Excellent | Top-tier; prioritize for optimal trades. |
Stock Evaluations
Public Service Enterprise Group (PEG): Reliable Utility Fueling AI Data Centers
Key Stats
TTM P/E: 21.1x
Dividend Yield: ~3.0% ($2.52 annual)
Liquidity: ~$3.6B with 58% debt-to-capital
Efficiency Score: Fair (5.3/10 for equity; ~2.3/10 Poor for LEAP
The Story PEG operates as a regulated utility in New Jersey through PSE&G, handling electric and gas distribution, while also generating power via nuclear plants. This setup provides steady revenue from rates set by regulators. In Q2 2025, non-GAAP EPS rose 22% year-over-year to $0.77, driven by solid nuclear output of 7.5 TWh at 88.8% capacity. A recent October 2024 settlement locked in a 9.6% ROE, offering visibility. Strengths include reliable dividends and ample liquidity to fund capex without new equity. Weaknesses: Higher EV/EBITDA (14.7x) than peers like AEP and DUK (~11.8x average), plus exposure to weather and regulatory shifts.
What Could Spark a Rise
Strong Q3 earnings report around November 3, 2025, highlighting operational gains.
Positive developments in nuclear operations or capex execution on the $21-24B 2025-2029 plan.
Broader market shift toward utilities as AI data centers drive power demand.
Action Plan
Price Range | What to Do with Stocks | Options Idea | Max Portfolio Weight |
|---|---|---|---|
≤$82 | Accumulate patiently | Covered calls (3-6 months ATM/OTM) | 5% |
$82–$92 | Hold as core position | Collars on existing holdings | 5% |
>$92 | Trim or hedge overweight | Avoid long-dated calls (poor efficiency) | 5% |
Fair Value: $82–$92 (midpoint ~$87). At current price of $83.70, potential upside ~4% to midpoint.
Delta Air Lines (DAL): Leading Airline Supporting AI Travel and Logistics
Key Stats
TTM P/E: 8.9x
Dividend Yield: ~1.2% ($0.75 annual)
Liquidity: ~$6.4B (including $3.1B undrawn)
Efficiency Score: 8.4 for LEAP call (Good); 5.4 for equity (Fair)
The Story DAL is a major US airline focused on premium cabins and loyalty programs, with co-branded revenue from AmEx up 9% in H1 2025. Q2 revenue held flat at $16.6B, but operating income hit $2.1B with a 12.6% GAAP margin, thanks to cost control and premium mix offsetting softer economy fares. Cash flow was strong at $4.2B in H1, bolstering liquidity. Strengths: Improving unit efficiency and $594M YTD profit-sharing for employees. Weaknesses: High leverage (86% debt/equity), cyclical exposure to fuel prices, and macro demand risks like tariffs.
What Could Spark a Rise
Favorable macro trends boosting travel demand, such as lower fares or economic rebound.
Declining fuel costs via hedging and refinery ops.
Upbeat FY25 guidance (EPS $5.25–$6.25) amid AI-driven business travel.
Action Plan
Price Range | What to Do with Stocks | Options Idea | Max Portfolio Weight |
|---|---|---|---|
≤$45 | Buy aggressively | Jan 2028 deep ITM call (for convexity) | 3% |
$45–$50 | Accumulate | Jan 2028 deep ITM call | 3% |
$50–$56 | Hold | Hold options if initiated | 3% |
>$56 | Trim or hedge | Sell calls against stock | 3% |
Fair Value: $45–$56 (midpoint ~$50). At current price of $61.69, potential downside risk; wait for pullback.
NVIDIA Corporation (NVDA): AI Chip Powerhouse Leading Compute Growth
Key Stats
TTM EV/EBITDA: ~48x (premium to peers)
Cash & Securities: $53.7B
Q1 FY26 Revenue: $44.1B (+69% y/y)
Efficiency Score: 8.2 for LEAP call (Good); 5.3 for equity (Fair)
The Story NVDA dominates AI accelerators and GPUs, with data center revenue surging on hyperscaler demand. Q1 FY26 saw record $44.1B revenue, but GAAP gross margin dipped to 60.5% due to a $4.5B H20 charge (non-GAAP 71.3%). Balance sheet is rock-solid with 3.4x current ratio and minimal debt. Strengths: Explosive growth from AI adoption and unmatched liquidity. Weaknesses: High customer concentration, export restrictions delaying shipments, and premium valuation vulnerable to margin fades.
What Could Spark a Rise
Blowout Q2 FY26 earnings on August 27, 2025, with margin recovery.
Successful Blackwell/GB200 ramps and China-compliant products.
Broader enterprise and government AI demand diversifying revenue.
Action Plan
Price Range | What to Do with Stocks | Options Idea | Max Portfolio Weight |
|---|---|---|---|
≤$165 | Accumulate aggressively | Jan 2027 150/210 debit call spread | 5% |
$165–$204 | Hold; add on dips <170 | Jan 2027 150/210 debit call spread | 5% |
$205–$220 | Trim profits | Protective collars | 5% |
Event (pre-Aug 27) | Hedge | Short-term put spreads | 5% |
Fair Value: $165–$205 (midpoint ~$185). At current price of $177.99, potential upside ~4% to midpoint.
Old National Bancorp (ONB): Value-Oriented Bank Financing AI Expansion
Key Stats
TTM P/E: 12.8x
P/B: ~1.07x
Dividend Yield: ~2.5% ($0.56 annual)
Efficiency Score: 3.1 for LEAP call (Weak); 6.2 equity (Fair)
The Story ONB is a regional bank with ~$71B in assets after acquiring Bremer, focusing on deposits ($54.4B) and loans ($48B) with an 88% loan-to-deposit ratio. Q2 NIM expanded to 3.53%, driving adjusted EPS of $0.53. Capital is solid at 10.74% CET1. Strengths: Attractive valuation, consistent dividends, and synergy potential from integration. Weaknesses: Credit risks (24 bps net charge-offs), deposit cost pressures, and rate sensitivity.
What Could Spark a Rise
Smooth Bremer integration, with systems conversion in mid-October 2025.
Sustained NIM above 3.4% amid curve steepening.
Positive credit trends and organic capital build.
Action Plan
Price Range | What to Do with Stocks | Options Idea | Max Portfolio Weight |
|---|---|---|---|
≤$20 | Buy/accumulate | Short-tenor covered calls | 4% |
$20–$25 | Hold; add on dips | Cash-secured puts | 4% |
≥$26 | Trim | Avoid long-dated calls | 4% |
Fair Value: $24–$27 (midpoint ~$25.5). At current price of $22.72, potential upside ~12% to midpoint.
Quick Portfolio Overview
Company | Ticker | Efficiency Score | Fair Value Range | Current Price | Potential Upside to Midpoint |
|---|---|---|---|---|---|
Public Service Enterprise Group | PEG | Fair (5.3) | $82–$92 | $83.70 | ~4% |
Delta Air Lines | DAL | Good (8.4 for options) | $45–$56 | $61.69 | Downside risk (over fair value) |
NVIDIA Corporation | NVDA | Good (8.2 for options) | $165–$205 | $177.99 | ~4% |
Old National Bancorp | ONB | Fair (6.2) | $24–$27 | $22.72 | ~12% |
Hiatus Notice
The AI Equity Update will take a brief hiatus next week for Labor Day. We'll be back with Issue #6 on September 7, 2025. Enjoy the holiday!
Important Legal Notices and Disclaimers
This newsletter is for informational and educational purposes only and does not constitute investment, financial, legal, or tax advice. The information provided is based on publicly available data and our analysis; it may contain errors or omissions. Past performance is no guarantee of future results. We do not recommend buying, selling, or holding any securities based on this content. Always conduct your own research and consult a qualified financial advisor before making investment decisions. The authors or affiliates may hold positions in the discussed stocks, creating potential conflicts of interest. All investments involve risk, including loss of principal.
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Important Legal Notices and Disclaimers
The information in this newsletter is for informational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Past performance is not indicative of future results. All investments involve risk, including the possible loss of capital. You should do your own research and consult with a qualified financial advisor before making any investment decisions. We are not responsible for any losses incurred based on this content.
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