Yes, Artificial Intelligence (“AI”) has been hot. And yes, the market just pulled back hard. So, is this just the latest bubble bursting, or is it an opportunity to buy things on sale? Unless, you have a working crystal ball, there is absolutely a right way, and a wrong way, to invest in AI.
AI Megatrend Perspective
Exceptional megatrend opportunities don’t come by often. Arguably, the internet (at the turn of the century) was the last one. A lot of people got burned badly when the so-called internet bubble burst over 20 years ago, but that doesn’t mean the internet megatrend died.
It didn’t.
The internet is such a huge, massive, immensely-profitable part of the global economy today. And its evolution provides some powerful lessons about how to profit from a megatrend in its early innings—i.e. the burgeoning AI megatrend.
Lesson 1: There will be winners and losers.
Many of us remember hugely popular internet companies that crashed and burned. AOL Online, MySpace, Webvan and even yahoo (compared to Google), all did horribly. Whereas, Apple, Microsoft and Amazon were huge winners. Keep this in mind (more on winners and losers later).
Lesson 2: Many of the biggest winners may not even exist yet.
Google and Meta didn’t even exist as publicly-traded companies during the internet bubble, but they are both huge internet company winners today. There is an important lesson in that (more on this later).
Lesson 3: Prudent Concentration Over Blind Diversification.
As investor, we can pick individuals stocks or we can just buy a passive index fund like the S&P 500. However, we can also invest in themes, such as the AI megatrend, which can offer some benefits of both strategies (i.e. top stocks, plus some diversification).
For example, investors may choose to prudently concentrate their investment portfolios in an evolving basket of AI stocks, but also complementing this basket by also owning some broader market diversification too.
The Best Way to Invest in AI…
The best way to invest in the AI megatrend is NOT to pick one or two AI stocks you like best, and then stubbornly hold on to them for the next 20 years.
A better way is to invest in the AI megatrend theme.
NOT by investing in some gimmicky over-priced AI ETF. But rather, by owning a variety of top AI stocks for the long-term, so you maintain an overweight exposure to the AI theme (instead of just investing everything in a passive index fund), while also being cognizant of the changing landscape of the AI market in the years ahead (and adjusting your portfolio accordingly).
For example, I promise you DeepSeek won’t be the last company to disrupt the leading AI LLMs today.
The Bottom Line:
Broad market diversification is a good thing, but you might want to consider maintaining a prudent overweight to the AI megatrend theme in the years ahead (because it’s going to be a huge part of the economy, and in aggregate, AI stocks are going to do very well). Don’t miss out on your piece of the AI pie.
*For reference, here are my top 10 AI stocks right now.