The AI Boom

“Patience is also a form of action,” Auguste Rodin.

It can be difficult to be patient, but it can be even harder to be disciplined.

The most difficult time of our history at Bond&Devick was in the late 1990’s when technology stocks were booming. Clients wanted to know why their portfolios weren’t up 30% a year like “the market”. The explanation, then (as now), was that a balanced and diversified portfolio would help get them to where they needed to be without taking on too much risk (especially when rebalanced now and then). The longer the tech boom lasted, the harder it was to keep clients disciplined, diversified, and balanced. Patience was at a premium.

But then came 2000, when technology stocks blew up in a spectacular fashion. Intel, which was one of the tech stocks that actually had profits and good margins, declined by over 70% from 2000 to 2002. In fact, the stock was hit so hard that it just recently reached a new high this year, 26 years after the tech bubble popped. Cisco Systems, another tech darling that made a lot of money during the tech boom, crashed by over 80% and took two decades to get back to an all-time high.

Today, we are in the midst of the AI boom, and many analysts are quick to note that, unlike the tech bubble, these AI companies are making a lot of money. Much of the mania around the tech boom was indeed misplaced, especially around companies that were never profitable and went bankrupt in the early 2000’s. But Cisco, Intel, and others were very profitable, and the sky was the limit – until it wasn’t.

The lesson to be learned in all of this is that a company can be very profitable (as were Intel and Cisco Systems), but still wildly overvalued at the same time. Are the big, incredibly profitable AI companies of today overvalued? Should investors pile headlong into SpaceX and other companies that have yet to make a profit? Our answer is to be careful. When things change, they tend to change quickly, and only with the benefit of hindsight is it possible to tell if a stock is significantly overvalued.

Balanced and diversified portfolios are not sexy. They won’t win you new friends at cocktail parties. But we believe this approach offers the most effective path toward achieving your goals - helping you manage risk thoughtfully while avoiding the temptation to chase market bubbles.