M2 Boosts Tech Stocks

As I write this newsletter, the Nasdaq index has again added another 1% to its tab of impressive performances.

This year has been a year to remember, with many AI stocks going from good to great.

Monetary tailwinds, like a boost in M2 money supply, cannot just be glossed over as nothing.

The Central Bank helps juice up tech stocks by making the monetary gears turn with an ample supply of Benjamins that flood U.S. assets.

Naturally, tech stocks are one of the big beneficiaries of the increasing M2 money supply.

I do believe if the federal government opens up in relatively near time, it could be the catalyst to take that increased M2 money supply and slingshot tech shares higher for a gangbuster Santa Claus rally.

Let’s just reverse back to July 2025, M2 hit an unprecedented $22.1 trillion, reflecting a 4.8% year-over-year (YoY) increase—the strongest growth in years.

This expansion, fueled by the Federal Reserve’s accommodative stance, including lingering quantitative easing effects and anticipated rate cuts, has injected robust liquidity into the financial system.

As money proliferates, it depresses borrowing costs, spurs investment, and heightens risk tolerance, creating tailwinds for equities, especially in the high-growth technology sector.

August 2025 marked a continuation of this upward trajectory, with M2 climbing to $22.195 trillion, up 0.43% from July and maintaining a 4.8% YoY gain.

What we have seen is a steady infusion of liquidity propping up the tech market from any meaningful pullback.

For tech stocks, which often trade on future earnings discounted at prevailing rates, this liquidity flood lowered the risk-free rate.

Pare the money supply exploding with the AI narrative, and these two bedfellows have mixed to make a potent partnership.

In portfolio theory terms, this excess liquidity reduces the equity risk premium, making high-beta tech stocks more attractive relative to bonds.

Tech equities have capitalized, and examples are everywhere, such as Amazon’s (AMZN) stock popping after earnings by 10%.

AMZN shares are up 33% in the past 6 months, illustrating how ample M2 supply can supercharge the trajectory of tech stocks.

Remember it was only in 2020-2021 when M2 surged (26% YoY), tech valuations ballooned 80%, as liquidity chased narrative-led growth over cyclical value.

October 2025 brought further affirmation of this trend, with preliminary estimates pegging M2 at expanding around 4.5% YoY.

This incremental growth, though tempered, sustained the liquidity environment, with demand deposits rising 1.2% amid consumer confidence at 105.

Tech firms have applied these incremental price gains to wield into higher than average Capex, which they hope will fuel the next leg higher in shares.

For instance, semiconductor firms like TSMC reported 20% capex hikes, directly tied to M2-fueled credit availability.

Year-to-date, tech’s 28% advance contrasted with the S&P 500’s 22%, underscoring M2’s role in amplifying growth multiples.

The mechanisms linking M2 expansion to tech outperformance are multifaceted. First, liquidity lowers the cost of capital.

Second, it stokes animal spirits, per Keynes, elevating risk appetite—evident in retail inflows to ARK Innovation ETF, up 35% in Q3.

In sum, M2’s steady climb from $22.1 trillion in July to $22.23 trillion by October 2025 has cemented a bullish regime for tech equities, channeling liquidity into innovation and speculation. This dynamic not only echoes post-financial crisis recoveries but portends sustained gains if easing persists.

In the short-term, buy the dip in tech.