Editor's note: Here at the Chaikin PowerFeed, we've often discussed AI as a massive, long-term investing trend. However, we've also cautioned many times that not every AI-related stock will be a winner by default.
And over at our corporate affiliate Altimetry, our friend Joel Litman has a similar message...
Regular readers will recognize Joel. He's the founder and chief investment officer of Altimetry. And today's essay from him published in yesterday's edition of the free Altimetry Daily Authority e-letter.
As you'll see, Joel's message helps reinforce why it's so critical to separate the winners from the losers with a world-changing tech trend like AI...
AI is following the same dangerous pattern we've seen before...
From the steam engine to semiconductors, almost every tech revolution follows a similar arc.
First comes the "installation phase." This is where massive investment floods into a new technology. Investors are giddy. They throw their cash at everything having to do with the latest tech. There's euphoria, overconfidence, and lots of speculative capital.
But most of these early bets are based on hype, not utility. And in the end, the market always crashes.
We saw this during the dot-com boom. In 1999, Internet stocks were minting millionaires.
Investors poured billions into anything with a ".com" in the name. The Nasdaq Composite Index doubled in a year. Just months later, most were wiped out. More than $5 trillion in market value vanished.
A telecom company called Global Crossing climbed to a $47 billion valuation by 2000... then it went bankrupt less than two years later.
Another one called Chemdex.com reached a $7 billion valuation... although it never booked more than $3.5 million in annual revenue.
But this wasn't the end of the Internet... it was just the end of the mania. Thousands of so-called Internet companies went bust. But the Internet didn't die. Instead, it entered the next phase... the "deployment phase."
It matured. And the winners – companies like Amazon (AMZN) and Cisco Systems (CSCO) – emerged stronger than ever.
Today, we're seeing the same signs with the next hot thing... AI.
The AI euphoria is here...
Microsoft (MSFT), Alphabet's (GOOGL) Google, Meta Platforms (META), and Amazon are expected to spend a combined $750 billion on AI infrastructure between this year and next.
By 2029, total global AI spending could hit $3 trillion. That makes it one of the fastest capital build-outs in tech history.
Yet, a recent Massachusetts Institute of Technology survey of over 300 initiatives found that 95% of companies haven't seen a return from their AI investments. Most are still testing pilot programs... or building tools they don't yet know how to use.
Meanwhile, the biggest winners are already separating themselves from the pack. OpenAI's ChatGPT serves more than 700 million users a week. Nvidia's (NVDA) chips are sold out for months.
And companies like Nebius (NBIS) and Oracle (ORCL) announced record orders for AI infrastructure – ramping up their backlogs and sending their stocks soaring 54% and 43% the following day, respectively.
These aren't speculative plays. AI is becoming essential infrastructure... just like broadband and cloud computing before them.
And when the dust settles, these are the types of companies you'll want to be holding.
After the crash comes the consolidation...
History shows us exactly how these stories end. Overinvestment triggers a crash. Weak companies fold. Capital flees the space. But the survivors take everything.
By 2004, Amazon's stock had recovered and gained more than 500%. Cisco became the backbone of global Internet traffic. Google had just gone public and changed the world of information forever.
We're headed for the same crossroads with AI.
The hype cycle will eventually pop. Companies with no business model will disappear. But those with scale, infrastructure, and proven demand will come out on top.
The key for investors is to stay in the market... and own the companies that already have their foot on the gas. Because at the end of the day, those leaders won't just survive... they'll dominate.
That's how wealth gets built during tech revolutions. Not by chasing the hype... but by holding the winners.
Regards,
Joel Litman
Editor's note: Tomorrow, at 8 p.m. Eastern time, Joel is going on camera for a huge announcement...
In short, he's sharing a breakthrough that he says could deliver more 100%-plus gains than anything he has done in his entire career. As Joel says, it's linked to more than 300 stocks that have already soared 100% or more in the past six months alone.
During tomorrow's special broadcast, Joel will share all the details – including how to position yourself before it's too late to take advantage of this setup. And his briefing is completely free to attend. Just reserve your spot in advance right here.
