I’m in a bind. On the one hand, I’m a big proponent of passive, boring investing—on the other, this approach taken to the logical conclusion of sitting on my hands steers me toward extreme over-exposure to AI.
The main issue is that if you try to have low-maintenance exposure to the global stock market, ~60%+ of your ETF(s) exposure will be toward the USA. Then, ~30%+ of it will be the Magnificent Seven (Nvidia, Alphabet, Apple, Microsoft, Amazon, Meta, and Tesla). Which is a pretty sizable bet, all of which can be considered an AI play.
Where it gets scary is that the introduction of Anthropic & OpenAI into indexes—which will inevitably happen—will not only increase our exposure to the technology sector and AI, but force rebalancing from safe bets (Apple, Amazon, Alphabet) toward very risky and overpriced ones (Anthropic, OpenAI, and followers). At the same time negatively impacting Magnificent Seven because of the investment circle-jerk among big tech and new players.
The reason why, instead of enthusiasm, I feel growing caution is that AI is very different from how most of Big Tech builds their businesses and coffers.
So far, the playbook was to invest and capitalize on the fact that serving new customers is cheap—high CapEx, low OpEx per user.
AI is different, as it requires extreme CapEx and high OpEx per user.
So far, private investors were footing the bill, making it a good deal for consumers. We will learn if this will hold only after public markets cast their judgment over new kids on the block balance sheets. But while AI is here to stay, historically, being invested in the first wave of new technology adoption was very rarely a good deal for public market participants.