Why Chasing Big AI Returns Could Backfire

Question: I’m befuddled. Six months ago, everyone was saying diversify because a market correction could be coming and AI investments might take years to produce meaningful returns. Yet the U.S. economy and stock market remain surprisingly strong.

Answer: You’re not alone. At the start of the year, AI infrastructure companies looked expensive and risky. Then, just when the rally seemed to fade, they surged again. Now they look risky again.

Can AI stocks keep climbing, or are they nearing a wall? Here’s how AMG sees it:

First, investors can earn solid returns without putting everything in the AI basket. While AI stocks rose, large-cap value investments gained about 5% in the first half of the year,* roughly a 10% annualized return. Small- and mid-cap stocks, which AMG expected to perform well, did even better.

Second, investing is not about chasing the highest return. It is about building a portfolio with the best chance of reaching your financial goals. If your plan only requires a 5% annual return, does it make sense to chase 20% by taking on much more risk? That strategy feels great until it stops working and leaves you with losses you did not need to take.

A less exciting portfolio may still deliver solid growth with a much lower chance of catastrophic losses—and a higher probability of meeting long-term goals.

Finally, this does not mean avoiding AI altogether. AI investments can have a place in a diversified portfolio. The key is keeping those positions proportionate to their risk. When one investment grows too large, it may make sense to take profits and rebalance.

Bottom line: Successful investing is not about keeping up with the Joneses. It is about making disciplined decisions that support steady performance over decades.

*Past performance is no guarantee of future results.