Take a small chance of getting a huge return and most of the time you lose your money.
Normally for an investor, that’s not a problem because you can take lots of small chances at huge returns and you’ll win often enough.
But when you have a single technology emerge with transformative potential you can’t diversify. Generative AI is already a once in a generation breakthrough and the whole economy is being dragged along for the ride.
Recent models have some believing it could be an epoch defining development.
Mustafa Suleyman, CEO of Microsoft AI, recently told the Financial Times that he thinks AI will match human level performance on most, if not all professional tasks involving sitting at a computer in the next 18 months.
The prediction is extreme, but the effects on the labour market already being felt. UK unemployment is at its highest level in nearly five years, with some assigning at least partial blame to AI.
Meanwhile, the stock market has been swinging wildly, as investors worry about the durability of moats in sectors from software to legal services.
It is a sharp turnaround from late 2025, when expectations for AI were falling. OpenAI’s GPT-5 had an underwhelming reception, despite contrary reporting from the tech trade press.
The consensus from commentators is that market reaction is overdone. Price moves have been indiscriminate within sectors, despite companies with proprietary data being in a strong position to gain from AI, at least at this stage of its development.
It is also odd that clear gains in productivity seem to wipe value from the stock market. The early February software sell-off dragged the S&P 500 down nearly 1%. Surely software’s loss should be big tech’s gain.
But investors should be ready for a bumpy ride.
Humans are predisposed to underestimate how quickly technology will develop. If you give Suleyman any credit, it is rational that even a small shift in the timeline or probability of such a consequential development produces a big reaction in asset prices.