Back Research Notes A PMI Rise: Paranoia Motivates Investment Published on July 21, 2025 By Jordi Visser In my most recent videos, I’ve emphasized a growing conviction: after nearly three years of contraction, I believe the U.S. manufacturing PMI is poised to move significantly higher, driven not by traditional demand cycles around real estate and autos, but by a new and powerful force: paranoia. Across both governments and corporations, a deepening fear of falling behind in the global AI arms race is reshaping investment priorities. Since Inauguration Day, several geopolitical and economic pressures have converged to amplify this urgency. The escalation of tariffs and renewed scrutiny of industrial policy have exposed the West’s dependency on Chinese-controlled rare earths, critical inputs for AI hardware and energy systems. Meanwhile, the emergence of DeepSeek has made it uncomfortably clear that China may be much closer to AI parity with the U.S. than most had assumed. On top of that, the wars in Ukraine, Russia and the Middle East have reminded the world that modern warfare is no longer about brute force, but technological supremacy and that AI will be at its core. As Marc Andreessen said in a recent A16Z podcast, “The decline in manufacturing wasn’t inevitable, it was a policy choice.” This environment of uncertainty and strategic anxiety is now driving investment at a scale and intensity that I believe will begin showing up in the manufacturing data through a long-overdue rise in PMI. And soon, this paranoia won’t just be confined to the boardrooms or defense departments, it will spread to the workforce, as employees begin to grasp how rapidly AI is reshaping the nature of work and the security of their jobs. From Doubt to Acceleration Earlier this year, there were moments of hesitation across markets and boardrooms. The rise of DeepSeek and the escalation of U.S.-China tariffs stoked fears that AI development might stall either due to geopolitical fragmentation or concerns around global growth. Some questioned whether the lofty expectations for AI investment would truly materialize. But instead of slowing, the opposite has occurred. We are now witnessing a broad acceleration in capital expenditure, driven not only by the race for compute but by a dawning realization: without significant investment in energy infrastructure, the AI vision cannot be sustained. Companies are increasingly vocal about constraints in power availability, and the U.S. government has responded in kind. Recent executive orders from the administration have explicitly supported nuclear energy expansion and grid upgrades. Perhaps most notably, at the Pennsylvania Energy & Innovation Summit, where former President Donald Trump headlined the event, over $92 billion in new investment was announced, with broad backing from tech and energy leaders and a sharp focus on funding data centers and power infrastructure. Adding to the urgency, news reports have made it clear that China is significantly ahead of the U.S. in building out electricity supply, further intensifying the pressure to catch up. As Marc Andreessen puts it bluntly, “If you don’t build the factories, the compute, the grid, then you don’t get AI.” Far from peaking, the AI arms race is deepening, and the fear of falling behind is pushing both public and private sectors into action. A Structural Shift Beneath the PMI The significance of a rising PMI after nearly three years of sub-50 readings, aside from just two months, goes far beyond a short-term economic rebound. It represents the early stirrings of a broader repositioning. Until now, investor exposure to AI has been concentrated in a narrow slice of the market, led almost exclusively by the Magnificent Seven and obvious beneficiaries in software and cloud. But the scale and direction of what’s coming next, especially the shift toward AI embodiment , will force a dramatic reallocation of capital. We are moving beyond code and into the physical world: autonomous vehicles, humanoid robotics, and a massive data center buildout are all on the near horizon. These trends mark the end of an era dominated by software innovation since the iPhone’s 2007 launch and the beginning of a five-year period where physical infrastructure, especially electricity, takes center stage. This was powerfully underscored when Marc Andreessen on the podcast declared: “AI is not just about large language models sitting in the cloud. We’re entering the age of embodied AI where intelligence takes physical form. That means robotics, autonomous machines, and real-world infrastructure.” His warning was unambiguous: “If we don’t lead in this domain, we risk a future of foreign-manufactured robots and losing control over core physical systems.” This comment reflects what I believe will be the most important pivot in investor psychology, a realization that AI leadership is not about app development or cloud APIs, but rather about controlling the hardware, energy, and supply chains that bring intelligence into the real world. As Andreessen also notes, “The future of economic power will be built in factories, on manufacturing floors, and inside energy grids.” Forecasts across the board point to an urgent and sustained need for energy investment. This is happening even as high interest rates continue to weigh on traditional economic sectors like housing, autos, and commercial real estate. Most economists use overweight these sectors in their models for their economic forecasts. Yet unlike those rate-sensitive areas, the AI-driven buildout appears structurally immune to monetary tightening. This divergence will define the next leg of the investment cycle and the next phase of PMI. Global Confirmation and the Rotation Beneath the Surface What reinforces this conviction week after week is the increasingly clear global confirmation of the shift underway. In China, the latest industrial production data shows a widening gap between weak fixed asset investment in real estate and retail sales while seeing surging output in future-facing sectors. Year-over-year strength in robotics, lithium batteries, electric vehicles, robotaxis and drones suggests that China’s growth is pivoting toward strategic technologies, positioning it to benefit from the same AI-fueled investment cycle seen in the West. Meanwhile, Europe is undergoing a structural transformation of its own, centered on a massive ramp in military spending. This pivot is beginning to lift forward-looking indicators, with the German ZEW expectations index, historically a leading signal for PMI, recently moving higher. On the corporate front, companies like Legrand and ABB have emphasized in earnings calls the strength of U.S. demand for data center infrastructure. The scale of that demand is striking: U.S. data center construction is already growing at a 40% year-over-year pace, a trend I’ve highlighted in recent videos. As Andreessen warned, “If the U.S. doesn’t take the lead, it risks living in a world of Chinese robots everywhere.” Taken together, these developments suggest that global growth, while still facing drag from housing and commercial real estate, is quietly rotating toward sectors that are central to the AI-industrial buildout. This shift is not cyclical, it’s foundational. Market Signals Align with a PMI Rebound Beyond global data and corporate commentary, market-based indicators are also beginning to confirm the thesis that a manufacturing rebound is underway. Historically, a rising PMI has been accompanied by strength in key cyclical assets, and this time is no different. Copper prices and the Kospi both surged to new multi-year highs, signaling a broad rotation into economically sensitive sectors. Meanwhile, the CRB Raw Industrials Index recently hit its highest level since 2022, suggesting real demand is starting to materialize beneath the surface. The dollar has seen its worst start to a year in many decades. A weaker dollar historical