Key Takeaways
- Identifying clear winners in the AI surge as events develop is notably challenging.
- The DeepSeek selloff of 2025 provides valuable insights for investors dealing with AI dynamics.
- The last significant technological shift, the dot-com boom, resulted in a handful of winners amidst many failures.
The recent AI upheaval serves as a reminder that investing during rapid technological transitions is often chaotic. Being correct about the overall direction does not guarantee investment success. In this environment, a patient, long-term strategy is more effective than trying to quickly pick winners or losers.
The present AI trend shares common traits with past tech revolutions like the dot-com boom, including real innovation, high expectations, and sharp market reactions to new developments. However, it diverges significantly in the vast amount of capital being invested and the rapid emergence of new capabilities.
Recent market behaviors highlight these issues. The software market downturn following Anthropic’s new model release, along with previous DeepSeek volatility in 2025, presents valuable lessons for AI investors.
Anthropic Launch Triggers Software Selloff
Following Anthropic’s announcement of its latest model, software stocks faced immediate pressure as investors reevaluated market dynamics and disruptions. The iShares Expanded Tech-Software ETF (IGM), for instance, experienced a sharp decline. Many investors who were optimistic about AI’s long-term potential still found themselves caught off-guard. Gaining substantial profit from these market movements required short selling at-risk companies, a strategy that is complex and often unsuitable for many investors.
Lessons for AI Investors From the Dot-com Boom
The closest historical reference is the late-1990s internet boom, where enterprises such as Amazon were elevated by the transformative potential of the internet challenging traditional retail. In hindsight, investing during this era seems straightforward, but it certainly was not. For instance, Walmart in the mid-90s appeared to be a likely casualty of the online retail boom but instead thrived by adapting and investing in logistics and technology, thus remaining a major player in the S&P 500 today.
The landscape may be similar in AI today. While market uncertainty may encourage blanket sell-offs, actual outcomes will hinge on how businesses evolve—specifically, their ability to integrate AI into their products and adapt their competitive strategies. Even amid market fluctuations, some software companies are likely to emerge as winners.
AI Is a Leveraged Bet With Uncertain Payoffs
However, the historical comparisons start to diverge here. The dot-com bubble featured genuine technological advancements but was also fueled by irrational exuberance. Today’s AI revolution is driven by significant investments, with AI infrastructure spending expected to surge by around 60% this year to over half a trillion dollars—a collective, leveraged gamble by major corporations, with uncertain outcomes.
This has led to significant price volatility among large-cap stocks, a phenomenon not commonly seen in recent times for companies of their scale. Developments are swiftly unfolding, causing markets to react dramatically with each technological advancement.
It remains difficult to predict what this groundbreaking technology will ultimately yield and how its value will be apportioned over time. History suggests that overconfidence can be detrimental, and while the temptation to pick real-time winners and losers is strong, it is complex. A diverse and patient investment strategy, which acknowledges both AI’s transformative potential and the uncertainty of its commercial viability, is likely to yield better long-term results for investors.
