Second Order AI Investing...
October 24, 2026
The markets are an uncomfortable place for investors these days. Everyone wonders if all the AI driven investing has created a bubble amid myriad explanations why it hasn’t or why it has. The markets are certainly acting like an actual bubble – each puff of optimism blowing them up, each abrupt gust of negative sentiment causing a precipitous drop. This is great action for nimble traders, great burn opportunities for amateurs.
A couple of things are obvious – AI is here to stay and will fundamentally alter many aspects of our lives. The lack of clarity on smart investing choices is also clear - the eventual long-term winners amongst AI service providers and infrastructure builders are as yet unknown. Ditto where the equity values for all the AI infrastructure players will settle out. Listening to the market pundits shows that it is anybody’s guess – opinions vary so widely. Predictions of precipitous market drops have begun to circulate lately. With rising interest rates, fixed income alternatives are not safe havens either.
So what are investors and their advisors to do? The hyperscalers and related companies are precarious investing waters to be swimming in, especially if you do not already have a stake with a large unrealized gain. Sure Micron is down over 30% from its recent peak and has $3,000 price targets from some analysts (a gain of almost 300%) – and it also dropped 9% in three days this past week. Not for the faint of heart. Moreover, with new providers emerging regularly, AI usage might become more of a commodity, margins declining, equity valuations throughout would be severely challenged.
You could leave your money in money markets and similar instruments that earn 4-5% for the moment. You could invest defensively in staples and food companies…maybe boring though safer and likely with dividend kickers. Yet maybe there is a better idea on how to deploy some of your capital into the emergence of AI…a different one anyway, overshadowed by all the noise and drama around the high flyers.
Years ago, a now legendary investment manager named Peter Lynch stunned the sophisticated investment community by suggesting that people would do very well, maybe even better than the professionals, by just focusing their attention on the life around them. Great investment ideas were there to be observed - newly popular shoes (recently Uggs, Clogs), in demand toys (e.g. Elmo, Beanie Babies), rising fast food chains (e.g. Panera Bread, Chipotle). The shares of the companies that sold them proved to be great investments
Similarly, why not think for a minute about companies and industries where the use of AI might be greatly beneficial. Several companies outside the tech realm (e.g. CH Robinson, Equifax, Sherwin Williams…) lately reported greatly improved profitability by leveraging the benefits of AI to manage their companies more effectively. Controlling corporate overhead, optimizing staffing, inventory procurement, and product development were all touted as ways in which AI helped improve margins, control costs, drive more effective product distribution.
Other companies are definitely waking up to the possibilities. Maybe you are using a software that has made you more productive. Not a candidate to be cut and replaced by some in-house AI developed version at all. With insight and foresight you might profit handsomely without all the drama and perilousness of investing in the AI build out surge. Naturally, I would love to hear any ideas that you might be willing to share.
Shifting gears...we are living in a 21st century version TV age. Now it is streamed shows, instead of over the airwaves programming, that is the topic of discussion. 'What are you reading' as a conversation gambit is now often supplanted by ‘what are you watching’ – sometimes followed by a debate on the merits, sometimes becoming a great suggestion of a less prominent show (Drops of God, anyone? Season 1 only). Stay tuned for a suggestion.
The link below is to a column by TV critic Alan Sepinwall about a TV show that captured the imagination of many long ago. Boomers will surely remember it and others of you may have happily stumbled upon it – The Twilight Zone was eerie, quirky, weird and sensational. I have not gone back yet to look at it to see how it has stood the test of time – the production values are certainly worse. Still, Mr. Sepinwall suggests it was clever in the extreme and remains timely today. The show's creator, Rod Serling, was a legendary figure in the industry. The shows were brilliantly conceived 30 minute capsules, shorter without the commercials. Not all are worthy but most are at a minimum thought provoking. Paramount+, Amazon Prime, and Pluto are some places that they are available. Do be careful…you will be entering The Twilight Zone.