Software Index

State of the Market

As we move into the final quarter of 2025, the U.S. economy shows signs of resilience amid cooling labor conditions and renewed trade frictions. September brought a mix of steady growth indicators and policy shifts, with the Federal Reserve’s rate cut signaling a pivot toward supporting employment. While official data releases have been disrupted by the government shutdown, alternative estimates paint a picture of modest expansion, tempered by external pressures.

On the software and AI front, OpenAI recently announced a multi-year partnership with AMD to deploy up to 6 gigawatts of Instinct GPUs for its next-generation AI infrastructure. Valued in the tens of billions, the deal includes a warrant allowing OpenAI to acquire a stake in AMD upon meeting milestones. Building on prior collaborations, it aims to optimize AI training and inference while diversifying beyond Nvidia amid rising demand. The news immediately boosted AMD shares by around 30%. Continuing this momentum, OpenAI announced a strategic collaboration with Broadcom on October 13, to co-develop and deploy 10 gigawatts of custom AI accelerators and networking solutions. This multi-year deal further diversifies OpenAI’s chip strategy and sent Broadcom shares surging about 9%.

The labor market remained stable but sluggish last month. Private payrolls declined by 32,000 in September, according to ADP data, reflecting caution among employers. The unemployment rate held steady at 4.3%, matching August’s figure, based on Chicago Fed projections. This follows a meager 22,000 nonfarm payroll additions in August, suggesting hiring has somewhat plateaued.

August inflation was at an annual rate of 2.9%, the highest since January. This could be a blip or indicative of a new trend. In any case, the Fed responded in mid-September by trimming the federal funds rate by 0.25 percentage points to a 4.0-4.25% range, citing balanced risks between inflation and jobs. Minutes from the meeting revealed a narrow majority favoring the move, with some officials eyeing further easing. This measured approach supports borrowing for growth-stage firms, though persistent inflation in the services sector warrants close watching.

GDP growth appears robust, with the Atlanta Fed’s nowcast for the third quarter at 3.8% based on early October estimates. This builds on the second quarter’s revised 3.8% annualized pace, driven by consumer spending. For PE and VC portfolios, sustained expansion bodes well for exits and valuations, particularly in consumer-facing sectors, but it also reduces the urgency for aggressive monetary policy shifts.

Equity markets experienced volatility amid trade headlines. As of mid-October, the S&P 500 is up about 13% YTD, while the Nasdaq is up about 9% YTD. The 10-year Treasury yield is hovering at around 4.0%, reflecting tempered rate-cut expectations.

Trade tensions recently escalated with newly announced tariffs on Chinese imports, including a proposed 100% levy effective November 1. U.S. container imports fell 8.4% in September, with shipments from China down 22.9%, disrupting supply chains. President Trump’s recent comments downplaying immediate escalation provided some relief, but these new tariffs have led to the resurfacing of earlier disputes, potentially raising costs for importers and affecting global trade flow.

Looking ahead, risks include prolonged trade barriers eroding business sentiment and a possible uptick in unemployment if hiring stalls further. Opportunities arise from lower rates fostering innovation funding and M&A activity. Key events shaping views include the delayed September CPI release on October 24, the FOMC meeting October 28-29, and the advance third-quarter GDP report on October 30, all critical for gauging the Fed’s next steps.