What if you discovered – too late – that your financial advisor was a compulsive gambler? That he had bet your life savings on a continued run of red or black on a roulette wheel?
Had you known, you would have put a stop to it. It wouldn’t have mattered if other advisors were doing the same thing or that he seemed to be making a lot of money.
You know that gambling comes to a bad end, and that it’s no way to build wealth.
Now shift your focus – just a bit – to what is now going on in the mania for stocks related to technology and artificial intelligence (AI). Most gains in the S&P 500 this year have come from such stocks.
Yes, innovation in AI is solving problems and increasing efficiencies in many applications. We own shares in a lot of companies that should benefit.
But trillions would have to be spent on AI services to provide a decent return on the massive sums used to equip new data centers. A Wall Street Journal writer noted recently that the amount spent on AI annually would have to rival the amount Americans spend annually on food or roughly twice what they spend on all forms of energy each year.
Meanwhile, two of the largest customers for this capacity – Anthropic and OpenAI – have committed to spending hundreds of billions that they can’t currently fund from their own earnings. They depend on new investment to stay afloat. Competitors are driving prices lower.
The zeal for AI stocks is a gambling fever. Ignoring risk is the chief symptom.
This is unlikely to end well.
Barry Dunaway, CFA®
Director of Research
America First Investment Advisors, LLC
Omaha, Nebraska
This post expresses the views of the author as of the date of publication. America First Investment Advisors has no obligation to update the information in it. Be aware that past performance is no indication of future performance, and that wherever there is the potential for profit there is also the possibility of loss.