The AI Wave: Excitement, Opportunity… and a Little Perspective

“Nothing is more expensive than a missed opportunity.”

— H. Jackson Brown Jr

In recent memory, we’ve gone through some big technological shifts. The Internet. Smartphones. Streaming. Social Media. Today, it’s Artificial Intelligence.

And much like the early days of those earlier technologies, the conversation around AI is a mix of excitement, confusion, predictions, and skepticism.

If you’ve noticed how often AI comes up in financial headlines, there’s a reason. Many of the market’s largest companies — often called the ‘Magnificent 7’ — are investing Hundreds of Billions of Dollars into AI infrastructure, chips, data centers, and software.

And as investors, many of us have exposure to these companies and this new technology.

Some exposure is probably good. Too much exposure is questionable. For example, about 35% of the S&P500 is invested in the ‘Mag 7’ companies. And all 7 of those companies are becoming increasingly AI-centric.

If you’re only invested in the S&P500, are you comfortable with about a third of your money being dependent on just 7 companies?

And on the other hand, if you’re on the sidelines (In cash, or mostly conservative investments), are you sure you don’t want any exposure to this new technology?

As investors, we aren’t just buying the current circumstances of these companies … We’re buying into their future outcomes. Which of course, is uncertain.

Some of the biggest optimists hold the belief that AI could reshape nearly everything about our lives. That may sound overly optimistic, but that belief isn’t coming out of thin air.

• In Cybersecurity & Banking, AI is being used to detect fraud and cyber threats proactively. Unlike humans, it works constantly and it can combat those threats instantaneously.
• In Transportation, AI is helping vehicles interpret their surroundings, understand patterns of behavior, and it’s using predictive analysis to make the roads safer for all of us.
• In Finance, AI is being used to forecast the economy, the markets, & detect potential risks faster and better than ever before.
• In Healthcare, AI systems are being trained to detect life-threatening diseases far earlier than traditional methods. This could eventually result in preventing disease altogether.

The potential upside is hard to ignore. All of these advancements are orders of magnitude better than what we had just 3 years ago. And it’s improving constantly.

These are just a few examples, but almost every industry is being impacted in one way or another. At the current trajectory, the optimists say this can result in lower costs for the things we all need and a much higher quality of life for all of us.

This is why many investors see AI as revolutionary. But the magnitude and timing of the changes are very unpredictable.

And of course, we’ve seen similar breakthroughs before.

Electricity. Computers. The Internet. Smart Phones.

All of them were powerful, but they were also all controversial. Each one of them felt risky, unfamiliar, intimidating, and some people even argued that they were unnecessary.

It took a while for each of them to fully integrate into our lives.

And then it took a while longer before the profits came.

But once the profits started, they were massive.

Now, each of these technologies feel ordinary, essential, & inevitable. And in hindsight, they seem like ‘no-brainers’ as investments.

These technologies did change the world in a permanent way, but not overnight.

Just because the end-result was revolutionary to our lives, does not mean that investment performance was good across the board and in every chapter of the transition. Investment returns don’t always move in sync with reality, especially in the early stages of a technological shift.

AI appears to be following a similar path.

Revolutionary technologies tend to evolve in phases. First comes discovery. Then hype. Then trial & error. Then widespread adoption. Then eventually, stable profitability.

We’re still in the ‘trial & error’ stage.

The hype appears to be real, but we don’t know the final outcomes yet.

For us as investors, that perspective matters. It’s very difficult to predict which company will dominate AI, what the next breakthrough will be, how much profits to expect, when the next ‘leg-up’ will occur, or which stock is going to be the next big outperformer.

All we need to do is stay disciplined, diversified, and patient. This timeless approach can capture some of the upside of the technology while still maintaining resilience for the long run regardless of all the uncertainties.

It’s funny … no matter how much the world changes, some things find a way to stay the same.

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Paul Saunder, Financial Advisor

I’m a financial advisor at Riverbend Wealth Management and author of Force Field Finance. I help people make confident money decisions to live the lives they want. I share insights through writing, speaking, and client conversations, and enjoy the outdoors, staying active, and time with family and friends.

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