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The Perpetual Growth Machine

The recent shifts in the global economy have left many people feeling shaken. Will artificial intelligence take our jobs? Will large budget deficits and high interest rates erode our standard of living? Will deglobalization lead to nations that are poorer, inefficient, and isolated? Will climate change disrupt our economies and uproot us from our homes? Underlying each of these questions is a quest for economic growth, a quest for improving one’s lot in life, an ongoing process as old as humanity.

We call humanity’s quest for improvement—to ensure better harvests, more comfortable homes, easier ways to make a living—the Perpetual Growth Machine, or PGM for short. More than a set of economic principles, the PGM is a mechanism that alchemizes needs into opportunity. We put resources toward building tools to address our needs, thereby producing innovation—which creates new needs, which then drive further innovation. In short, a perpetual cycle.

Viewed through the lens of the PGM, economic growth is a highly diffuse, organic, and continuous process. Most people have an innate desire to better their condition in life and that of their loved ones. Our individual and collective appetite for improvement is constantly bumping up against others’ vested interest in the status quo, misaligned incentives, or just plain unwillingness to change. The sum of this continuous tug-of-war is usually measured as economic growth.

Economic growth is central to investing; even fixed-income investors are preoccupied with growth. After all, if a business does not make more money tomorrow from borrowing today, how can bond investors expect to be repaid for lending? 

The PGM explains why and how economic growth happens. It enables investors of all stripes to identify and estimate investment opportunities accompanying economic growth. It also provides a framework for analyzing conflict between people and businesses that are hungry for improvement and their competitors fighting to maintain the status quo.

The PGM can be applied to virtually all socioeconomic questions, whether historical or current. It can be used to make sense of international conflicts, national and regional policies, political agendas, and more.

As growth investors, we view the PGM as offering a solution to the challenge of understanding and profiting from growth. It is a key to recognizing when and where economic growth will come from next—whether in a new geography or a new industry—and what conditions are necessary to perpetuate this growth.

To illustrate how we, as investors, apply the PGM to our portfolios, we will describe the process in detail, identify the conditions that support growth, respond to objections, and provide examples. After explaining the PGM—how and why economic growth happens—we dwell on the central role of institutions in promoting or stifling the Perpetual Growth Machine and explore why this cycle is indeed perpetual.

Next, we apply the concepts inherent in the PGM toward investing. We will show how the PGM can help formulate the right questions for uncovering the next profitable investment opportunity, demonstrate the role of institutions and financial support in promoting innovation and maximizing investment returns, and, finally, point to the PGM’s implications for active versus passive investing strategies. 

AI: A New Algorithmic Era 

The rise of AI marks the dawn of a new era, and to navigate tomorrow’s technological and financial landscape, investors must grasp technology’s underlying principles rather than judge it by immediate appearances.

We all know that as compute has grown ever cheaper, information has been processed with unprecedented efficiency. But what is it about AI’s core design that produces  transformative outcomes? 

Since the 1940s, software engineers have built algorithms like master craftsmen—precise, rule-based mechanisms directing data and compute. But today's transformer-based models running on GPUs have turned that paradigm inside out. Instead of static instructions, we see systems that learn, adapt, and scale with data. 

The implications for capital allocation are profound: enterprises deploying AI can unlock productivity gains at scale, compress time-to-market for new products, and rewire R&D economics.

For investors, this represents not just a technological shift but a redefinition of competitive advantage, value creation, and ultimately the next wave of earnings growth across sectors.

What’s Different About Today’s AI?

If algorithms serve as the gears of a clock, then the growth in data (driven by the internet) and compute (driven by semiconductor technology) are no longer inert components but the very hands that set the gears in motion.

Source: William Blair, as of March 2025.

Non-U.S. Investing in a Fragmenting World

Are the conditions underpinning more than a decade of non-U.S. equity underperformance starting to shift? According to our global equity team, yes. 

We believe there are three drivers: 

• Tariffs are weighing on U.S. household income and may curb consumption;
• Fiscal and economic policy abroad is becoming more proactive; and
• Macro conditions are reshaping relative growth prospects. 

As growth differentials narrow, our global equity team sees compelling valuations—and potential capital flows—outside the United States.

Changing of the Guard?

After an extended period of outperformance of U.S. equities relative to non-U.S. equities, we believe that economic and political developments may lead to a strong environment for non-U.S. equities.

Sources: Bloomberg and William Blair, as of 5/31/25. Past performance is not indicative of future returns. For the top chart, U.S. equities are represented by MSCI USA Index, and non-U.S. equities are represented by the MSCI EAFE Index through December 1987 and the MSCI ACWI ex-US from January 1988 onward; data prior to the index launch date is back-tested (i.e., it shows calculations of how the index might have performed over that time period had the index had existed). There are frequently material differences between back-tested performance and actual results. A direct investment in an unmanaged index is not possible.

India: A Growth Powerhouse

Overall, we believe India remains one of the most attractive long-term growth stories in emerging markets (EMs).

It is the fourth-largest equity market globally in terms of market capitalization, and the second-largest market in the MSCI EM Investable Market Index (IMI) as of December 31, 2024, with its weight roughly doubling over the past five years to more than 20%.

As the country continues on its growth trajectory, it holds the potential to echo China’s rapid economic ascent during the early 1990s, albeit with a more balanced and sustainable growth model.

India’s Share of Global Growth

India’s share of global gross domestic product (GDP) growth now exceeds 15% and is expected to trend higher.

Sources: IMF, Morgan Stanley Research and William Blair as of Sept ember 2024. E refers to estimated.