Is AI the Next Internet Bubble? What That Question Teaches Us About Successful Investing

Why understanding risk, managing emotions, and having a plan matter more than predicting the next market correction.

A client called me recently with a question I’ve been hearing more frequently.

“Do you think we’re in an AI bubble? Should we be moving some of our investments to safety?”

It’s a reasonable question.

Artificial intelligence is changing the way we work, communicate, and conduct business. Companies are investing enormous amounts of money into developing AI technology, and investors are trying to figure out which companies will benefit most.

But with all that excitement comes a legitimate concern. Have stock prices gotten ahead of themselves? And if they have, should investors be doing something about it?

As we talked, my client made an interesting connection. He compared what’s happening with artificial intelligence today to what happened with the internet in the late 1990s and early 2000s.

I thought it was a pretty good comparison.

Remember the Internet Bubble?

If you’re old enough to remember the late 1990s, you’ll remember how excited everyone was about the internet.

And for good reason.

The internet was going to transform how we communicate, shop, work, bank, and conduct business. Companies were racing to establish an online presence, and investors were pouring money into anything associated with the internet.

The excitement wasn’t misplaced. The internet really did change just about everything.

But that didn’t mean every internet company was a good investment.

When the dot-com bubble burst in 2000, technology stocks experienced enormous losses. Many companies went out of business entirely. Others survived and eventually became some of the most valuable businesses in the world.

Investors were right about the internet’s potential to transform the economy. But many were wrong about which companies would succeed, how quickly the transformation would happen, and what those companies were worth.

I wonder if we’ll look back at artificial intelligence in much the same way.

I don’t know whether we’re in an AI bubble. Maybe we are. Maybe we’re not. But I do believe AI is going to fundamentally change the way we live and work, much like the internet did.

And if we do experience a significant pullback in AI-related stocks, that doesn’t necessarily mean the technology isn’t going to be successful. It may simply mean investors got ahead of themselves in determining what some of these companies were worth.

That’s what makes investing in emerging technologies so challenging. You can be absolutely right about the direction of the technology and still make a poor investment decision.

So the question isn’t simply whether AI stocks might decline. It’s whether your portfolio is positioned appropriately for your financial circumstances, your long-term goals, and your ability to weather that decline if it happens.

And that brings me back to my client’s original question.

Should we move to safety?

What Does Safety Actually Mean?

One of the things I spend a lot of time discussing with investment clients is the difference between volatility and risk.

We often use those words interchangeably, but they’re not the same thing.

Volatility describes how much the value of an investment fluctuates. Stocks go up and down, sometimes dramatically.

Risk is more complicated.

When I’m helping someone manage their investments, I’m concerned about more than the possibility of their account declining in value.

I’m concerned about whether they’ll have enough money to accomplish the things that matter to them.

Will they be able to retire when they want to? Will their money last throughout retirement? Will they be able to maintain their lifestyle as the cost of living increases?

Moving money out of stocks and into cash may reduce the volatility of a portfolio. But it can also introduce other risks, including the possibility that the portfolio won’t grow enough to support those long-term goals.

That doesn’t mean cash is bad. Cash serves an important purpose in a financial plan, especially when money will be needed in the near future.

It means we need to understand what we’re trying to accomplish before deciding what constitutes a safer investment.

The Right Amount of Risk Is Personal

When we’re building an investment portfolio for a client at Plan Wisely, we’re trying to answer a few important questions.

How much risk do you need to take to accomplish your financial goals? How much risk can you actually afford to take? And perhaps just as importantly, how much risk are you comfortable taking?

Those aren’t necessarily the same thing.

In financial planning, we distinguish between your capacity for risk, which is how much risk your financial circumstances allow you to take, and your tolerance for risk, which is how comfortable you are with the ups and downs of investing.

You might have the financial ability to weather a significant market downturn but still lose sleep every time your account balance drops.

And that’s important for us to understand.

Our job isn’t to build the most aggressive portfolio you can afford. It’s to help you find the appropriate balance between the growth you need, the risk you can afford, and the uncertainty you can live with.

I’ve seen firsthand how differently people can experience the same market.

I once worked with a married couple who had very different investing personalities. The husband was comfortable with market fluctuations, while the wife was extremely uncomfortable watching her account balance decline.

Over the years, we had a lot of conversations about risk, the importance of staying invested, and the challenges of trying to time the market.

Eventually, she decided she had experienced enough volatility and wanted to move her portfolio to cash. Her husband remained invested.

Over time, his portfolio significantly outperformed hers.

I don’t share that story to criticize her or suggest that she should have taken more risk than she was comfortable taking. In fact, I think it illustrates why understanding an investor’s emotional tolerance for risk is so important.

A portfolio can look perfectly reasonable on paper and still be entirely inappropriate for the person who owns it.

And while moving to cash reduced her exposure to market declines, it also introduced another risk: the possibility that her money wouldn’t grow enough to support her long-term financial goals.

That’s something we need to consider when deciding how much risk is appropriate.

The Problem With Trying to Predict What Happens Next

Let’s assume for a moment that we’re experiencing an AI investment bubble.

What should we do?

Sell our technology investments? Reduce our exposure to stocks? Move everything into cash until valuations become more reasonable?

Maybe an adjustment is appropriate. But that decision should depend on your portfolio, your financial circumstances, and your long-term goals, not simply on a prediction that the market might decline.

Because getting out of the market is only half the decision.

At some point, you have to decide when to get back in.

What would need to happen before you felt comfortable investing again? Would AI-related stocks need to decline by 20%? Would you wait for the economy to improve? Would you wait until the financial news became more optimistic?

And what if the market recovered before any of those things happened?

This is one of the challenges with market timing. The same uncertainty that makes us want to get out of the market can make it difficult to get back in.

That’s not an argument for ignoring investment valuations or refusing to make portfolio adjustments. We absolutely need to pay attention to what’s happening in the markets.

But there’s a difference between managing risk intentionally and making major investment decisions because we’re worried about what might happen next.

Successful Investing Is About More Than Investments

Our conversation about AI reminded me why we recently developed Plan Wisely’s Core Principles for Successful Investors.

We organized those principles around three ideas:

1. How markets work. Markets are unpredictable in the short run. Volatility is normal, and no investment strategy will outperform every year.
2. How investors feel. Fear, doubt, optimism, and the fear of missing out are all part of the investing experience.
3. How successful investors behave. They follow a thoughtful process, communicate openly, and make investment decisions based on their goals rather than reacting to every headline.

These principles guide how we build portfolios, evaluate investment managers, and work with our clients.

And they’re especially important during moments like this, when a new technology has everyone wondering what the future holds.

I don’t know whether AI stocks are in a bubble. I don’t know whether we’ll experience a significant market correction or whether the companies driving today’s excitement will continue growing into their valuations.

But I do know that my clients have financial goals that extend well beyond whatever happens in the stock market over the next six months.

Our responsibility is to help them invest in a way that gives them a reasonable opportunity to accomplish those goals, while managing the risks that could get in the way.

Sometimes that means making adjustments to a portfolio. Sometimes it means reminding a client why we built their portfolio the way we did in the first place.

That’s part of the ongoing work of managing someone’s investments, and it’s one of the reasons I believe having a financial advisor can be so valuable.

So the next time you’re concerned about what’s happening in the market, whether it’s AI, interest rates, elections, or the next economic headline, I encourage you to ask yourself a question:

Has something changed in my financial life, or has something simply changed in the headlines?

The answer may help you decide whether it’s time to change your investments or simply revisit why you own them.

And that’s what I believe successful investing is really about.

Not predicting every market movement, but making wise decisions through all of them.