Q+A: Where to invest if the AI boom comes unstuck

Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. Artificial intelligence has become one of the defining investment stories of this market cycle. But what happens to your portfolio if the AI boom comes unstuck? Remember, this is general information only. You should always seek advice tailored to your circumstances before making investment decisions. Gaurav Sodhi is Deputy Head of Research at Intelligent Investor. Gaurav, welcome back to Fear and Greed Q&A. Hi, Sean. Great to be with you. Intelligent Investor has put together an anti-AI portfolio, looking at companies whose investment cases don't depend on the AI boom. What worries you about AI as an investment theme, or is it just a diversification plan?

Sean, there are two reasons we put this together. The first is that we are naturally a bunch of contrarians and I'm a firm believer in investing in a way that is authentic with your weird personality. So whatever strange trade you exhibit, lean into that strange trade. Be a weirdo in investing because it's the one area in life that allows you to be the oddball, succeed because of that. Everywhere else demands you fit into a very neat little cookie cutter approach. Investing is wonderful because You can be the contrarian and the oddball and benefit from it. We are naturally contrarian. When everyone is talking about one part of the argument and everyone is optimistic and, I would say, almost euphoric about AI, it pays to just at least examine the contrarian case. I think we've done that with these stocks. The second reason is also because what AI has done is really cut the cost of intelligence to zero. We haven't really seen this before in human history, and it will have profound implications. We don't know what those implications will be. There's a natural tendency for people to be optimistic and to expect the future to be better, but I think it's a good idea to have at least part of your portfolio grounded in the physical world. where real objects and real goods and services move around. And that's just a form of sensible diversification. Even if you're not a weirdo like we are, it's just a sensible thing to do to have part of your portfolio in the real world.

Okay. You mentioned some of those previous booms, but when you think about railways and electricity and internet, the really big ones over the last few hundred years, what does history tell us about the point we're at now in the AI world?

Booms are almost always grounded in reality and they almost always end in euphoria. So there's always an element of truth that gets a boom, its initial oxygen and gets going. It's the nature of investing that those... There's nuggets of truth and that initial optimism fuels a euphoric boom and a bus cycle. And that's very necessary because you need people to be optimistic and euphoric to fund all the capital that is going into AI, just as you needed those trades to fund railways, to fund electricity. If you remember in the 90s, Sean, I don't want to take liberties with your age, but if you remember in the 90s, we needed the euphoria and the boom to fund fiber optic