The AI Stocks Most Likely to Survive the Bubble

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A bubble in the markets is inflating, and you don’t want to be holding the wrong stocks when it bursts.

Because it will pop – just as every other bubble has.

I’m of course talking about artificial intelligence (AI) stocks.

AI is taking the world by storm.

At my son’s college graduation, the keynote speaker half-jokingly congratulated the students for being the last graduating class to actually do their own work.

AI not only can write an essay on the Ottoman Empire and its effect on European culture, but also can compose music, create visual art, discover medical breakthroughs and do an endless number of other things.

AI is also going to create fortunes – for those who are early in harnessing its power and for the investors who are early in the right stocks.

Unfortunately, most investors will pick the wrong stocks, get in too late and sell even later. We saw it happen during the housing bubble, the dot-com bubble and every mania prior.

In fact, AI stocks have already soared this year. Microsoft (Nasdaq: MSFT) and Alphabet (Nasdaq: GOOGL), two of the leaders in AI, have seen their stocks jump 37% and 33%, respectively, year to date, while Nvidia (Nasdaq: NVDA), the leading chipmaker in the AI space, has spiked 184%.

Just as they did with the internet during the dot-com boom and blockchain during the crypto bubble, companies today are mentioning AI whenever they get the chance, hoping to be affiliated with this rising trend.

In the first quarter of 2023, 110 of the 500 companies in the S&P 500 mentioned AI in their earnings calls, up from the previous record of 78 in the fourth quarter of 2022 and 61 in the first quarter of 2022.

Chart: Number of S&P 500 Companies That Mentioned AI on Their Earnings Call
During the dot-com, crypto and marijuana manias, there were a lot of big, “can’t miss” stocks that not only missed but went out of business.

Remember That became a zero.

Inktomi traded at well over $200 per share in 2000. It was acquired for less than $2 per share two years later.

Marathon Digital Holdings (Nasdaq: MARA), a crypto miner, is down 92% from its highs.

Cannabis company Cresco Labs (OTC: CRLBF) is down 90% from its high just two years ago.

Over the coming months, you’re going to hear a lot about AI and ways to profit from it. Just as with all of the bubbles before, the overwhelming majority of companies are going to bomb.

If you want exposure to AI, stick with the tech giants that have proved they know how to navigate emerging technologies over the past few decades.

The odds of success for the little company your brother-in-law tells you about are about as high as Joe Biden and Donald Trump singing “Kumbaya” together on the White House lawn.

Learn from past bubbles and don’t make the same mistakes.

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