Surviving the AI Dragon

Some businesses might be less vulnerable to disruption because replacing them would require enormous amounts of time, money, infrastructure, or regulatory approval. The thinking is that businesses tied to physical assets and infrastructure may be more resilient when technology changes. Think utilities, transportation networks, energy infrastructure or certain healthcare businesses.

At first glance, these businesses may seem well positioned to survive the AI dragon. After all, the most advanced technology still needs electricity, transportation and physical infrastructure to function.

But even businesses that are physically difficult to replace are not guaranteed to remain relevant. History is full of examples of industries that looked indispensable until technology changed the rules.

Ask a horse and buggy manufacturer from 100 years ago. Transportation didn’t disappear. People simply found a different way to solve the problem. The competition didn’t come from a bigger, better horse breeder.

Being large, asset-intensive, or difficult to replace can be a valuable advantage. But like a moat, those advantages only matter until someone finds a different way to solve the problem.

With major technology shifts, investors often start sorting businesses into two piles: the winners and the losers.

Reality is usually a little messier. While not every company will battle the AI dragon and win, many will refuse to be devoured. Instead, they’ll morph into better, more relevant versions of what they used to be.

Most people now think of Netflix as a streaming company, but that’s not how it started. In the early days, Netflix mailed DVDs to customers. When internet speeds improved and people became comfortable watching shows online, the company changed. Later, it changed again to become a major producer of original content. Netflix benefited from the internet revolution, but it had to evolve to do that.

The same thing can happen across an entire industry. When ride-sharing apps first appeared, many people predicted the end of the traditional taxi business. Instead, many taxi companies launched their own apps and adopted some of the same features that made ride-sharing popular. In some large Canadian cities, technology that looked like a threat became part of the way many drivers do business.

We may end up seeing something similar with AI. Some companies will find ways to make the technology work for them. Others won’t. Many will end up somewhere in the middle, adapting as they go.

That’s worth keeping in mind as an investor. Major technology shifts don’t just create winners and losers. They also create adapters.

Get the feeling that recently some investing ideas haven’t been getting the attention they deserve? Some stories are simply not as flashy right now.

When investors get excited about a new theme, they tend to crowd into the same part of the market.

The excitement around AI has helped push some technology companies to very high valuations while drawing attention away from more traditional sectors. Areas such as Financials, Energy and Health Care currently trade at much lower valuations than most tech names.

That doesn’t automatically make them better investments. Some sectors trade at lower valuations because they face real challenges. But when investors become heavily focused on one theme, it’s worth asking what opportunities might be overlooked somewhere else.

After all, not every growth story has “AI” in the title.

There’s one more thing investors should remember about technological revolutions: not all the winners are obvious at the beginning.

When a new technology arrives, investors naturally focus on the companies building it. But some of the biggest beneficiaries emerge later, after the technology becomes part of everyday life.

In the early years of the internet, investors focused on search engines, internet service providers, and e-commerce pioneers. But the internet also paved the way for businesses like Shopify, which depended on a mature online ecosystem to thrive.

Few investors predicted all of the businesses that would eventually benefit from the internet. The same will likely prove true for AI. Some future winners may not even exist yet. Others may already exist but operate in industries that seem unrelated to artificial intelligence today.

That’s another reason to be cautious about declaring winners and losers too early. The AI dragon may not just challenge existing businesses. It may create entirely new opportunities that are difficult to imagine today.

The internet didn’t just create internet companies. It transformed retail, entertainment, travel, banking and countless other industries. AI may ultimately follow a similar path.

If AI changes the world, it doesn’t automatically follow that every winning investment will be an AI stock.

Some businesses will remain relevant because they have strong competitive advantages. Others because they provide products or services that are difficult to replace. Still others because they’re able and willing to adapt when circumstances change. And sometimes investors uncover opportunities simply because the market is paying attention to one story while overlooking another.

None of these approaches offers a crystal ball. Every advantage comes with risks, assumptions, and the possibility that the future unfolds differently than expected.

The AI dragon may change the landscape, but the questions smart investors ask remain surprisingly familiar. Does a business have durable advantages? Is it difficult to replace? Can it adapt when circumstances change? And is the market overlooking opportunities elsewhere?

Those questions may not predict every winner, but they can provide a useful framework for thinking about businesses in a world increasingly shaped by AI.