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Like it or not, artificial intelligence (AI) is here to stay — and it’s only going to get bigger. So before it (potentially) steals your job, consider using the stock market to profit from it.
Like the dotcom bubble and previous bubbles before that, AI’s likely to burst too. But when it does, smart investors will swoop in to grab cheap shares before they rebound.
Consider Microsoft, for example. At the height of the dotcom frenzy, it was selling shares at almost $40 a piece. After it burst, they dropped to $12. It took some time, but by late 2014, they were back above $40.
Those who bought at the high made almost no profit, but those who bought the dip nearly quadrupled their investment.
Is AI the same?
Right now, AI stocks are reaching eye-wateringly high valuations, due to a ‘first-in-the-door’ frenzy. That can lead to unrealistic — and unsustainable — growth.
But even if the bubble bursts, the technology won’t go away — the shares will just get much cheaper. This is the opportunity. As implementations of AI eventually find real-life, profitable use cases, the market should begin to recover.
Is this a likely scenario?
Nobody can truly predict where the market’s headed. Even some of the most popular analysts have been wrong in the past about stock market crashes. And it’s fair to say that today’s conditions don’t exactly mirror the dotcom bubble. Still, it doesn’t hurt to prepare, especially when the signs are there.
Consider the following:
- AI’s pushed some big US tech and chip stocks to very high valuations.
- It’s concentrated in a narrow group of AI winners (mega‑cap platforms and semiconductor names).
- However, unlike 2000, most AI leaders are already highly profitable with strong cash flows.
So the main risk is concentration. If AI earnings or adoption disappoint, a de‑rating in a handful of giants could hit the market hard.
What this means for UK investors
The trick is picking the right shares. After the dotcom bubble, not every company recovered. Think Compaq, Pets.com and 3dfx — all went bankrupt or were sold to competitors.
This adds risk, as nobody can say for sure who will survive. But there’s a smart route that investors can take to reduce this risk — an AI-focused investment fund.
Grabbing a slice of the AI pie
Polar Capital Technology Trust (LSE: PCT) is a fund that invests in tech stocks, specifically those focused on AI. Top holdings include Nvidia, Alphabet, TSMC, Broadcom and Samsung.
It’s also one of the top-performing, UK-listed stocks over the past decade. Some estimates put its cumulative 10‑year total return at 9,707% (an average of 58.18% a year).
That’s a once-in-a-decade type of return that’s unlikely to happen again anytime soon — but it does suggest the fund’s managers know what they’re doing.
The caveat being that it’s highly concentrated in a single country (US) and sector (tech). This adds a high risk of loss if any major issues hit the US tech market.
Why I like it
The trust benefits from broad diversification in the tech sector, which removes the risk of loss from a single stock.
In short, UK investors can get exposure to a potential AI rebound without having to spend months researching every company. So for a moderate ongoing charge of just 0.77%, I think it’s well worth considering if the AI bubble bursts.
This story originally appeared on Motley Fool
