It feels like Artificial Intelligence is everywhere these days. Headlines, earnings calls, even casual conversations; all roads seem to lead back to AI. For many investors, that excitement brings both curiosity and concern: Should I be chasing this trend? Am I missing out if I’m not all-in?
These are fair questions. But history reminds us that every “next big thing” comes with both opportunity and risk. The smartest investors learn to embrace innovation without being consumed by the frenzy. Bubbles are nothing new, and we can look to history for valuable lessons.
The Pattern of Every Bubble
Every generation has its breakthrough story. Railroads promised to connect continents. Radio and television would revolutionize communication. The internet would reshape business and society. Housing finance fueled a boom and then a bust. Cryptocurrency captured imaginations with the promise of decentralized finance, and twice lost more than half its value.
And now, AI is being cast as the defining innovation of our era. The story behind a bubble is usually true: these technologies really do transform industries and even economies. But the hard truth is that not every company riding the wave survives. In fact, the normal pattern is that only a few emerge as very big winners while the great majority fade away entirely.
Why Chasing Winners Rarely Works
In the dot-com boom, thousands of internet companies went public. By the time the Tech Wreck had done its worst in 2001, 80–90% of them had vanished. A handful—Amazon, Google, eBay, and some others defined the next generation of wealth creation.
If the centuries-long pattern of bubbles holds, the same will be true in AI. A few giants will change the world. But which ones? No one can know with certainty. Trying to pick the next Amazon is like buying lottery tickets: potentially a big payoff, but the odds are long. As investors, that puts us at a crossroads: we can try to guess the winners, or we can adopt a wiser approach.
The Timeless Approach: Diversify and Be Patient
Jack Bogle, the founder of Vanguard, offered a simple truth that resonates more today than ever: “Don’t search for the needle in the haystack. Just buy the haystack.” Instead of concentrating your bets on a single AI company, own a broad basket of investments that are likely to be impacted by AI. That way, you automatically hold the companies that endure, without risking it all on the ones that don’t.
Morgan Stanley projects that $920 billion in annual net benefits could flow to S&P 500 firms from AI adoption, implying broad, if not universal, economic impact across the index.
The Center for Audit Quality’s 10-K analysis revealed that roughly 72% of S&P 500 companies explicitly mention AI in their 2023 regulatory filings, underscoring the widespread recognition of AI as a strategic or operational factor.
This isn’t just about avoiding losses. It’s about putting yourself in the best position to benefit from the long-term winners, the ones that will emerge stronger after the hype has cooled.
When the world is buzzing about the “next big thing,” here are the principles that endure:
Stay diversified; don’t put your future on a single story. Remember the fundamentals: great companies still need great earnings to be a great investment. Think long-term: breakthroughs unfold over decades, not quarters. And finally, use volatility wisely. Pullbacks are opportunities to rebalance, not reasons to panic.
Final Thought
AI may very well be the defining innovation of our generation. But remember: every great story in the markets comes wrapped in speculation, noise, and hype. Your advantage isn’t in guessing which stock makes the leap. It’s in owning the haystack, staying patient, and letting time and innovation do the work for you. That’s how you participate in the future of technology without risking your own security.
Our principal mission is to help our clients find that point of maximum agreement between risk and return, and then manage portfolios for maximum after-tax return. If we can help you understand how your portfolio is structured and managed, we’d love to help.
