AI might change the world. But will every AI investment make money?

One Australian company lost almost half its value in a single day this week.

And it sits right in the middle of one of the biggest investment themes in the world.

Artificial intelligence.

NEXTDC is one of Australia’s largest data centre operators.

Its share price fell approximately 42% after delays to power upgrades at its Melbourne facility forced the company to sharply reduce its revenue and earnings forecasts.

And here’s the interesting part.

The demand for data centres hasn’t suddenly disappeared.

AI hasn’t stopped growing.

The long-term story may still be enormous.

But the company ran into a very practical problem.

It couldn’t get the power infrastructure it needed, when it needed it.

And in one day, around $3 billion was wiped from its market value.

NEXTDC isn’t the only recent example.

AI data centre company Firmus also attempted to list on the Australian share market, but the IPO was withdrawn after investors pushed back on its proposed valuation.

Again, the problem wasn’t necessarily the long-term potential of AI.

It was the price investors were being asked to pay for that potential.

That is a useful reminder of something I think investors can easily forget.

A great investment theme and a great investment are not always the same thing.

I’ve had a few clients ask recently whether AI is becoming a bubble.

Fair question.

The honest answer is that nobody knows exactly how this plays out.

AI could genuinely reshape the way we work, communicate, invest and run businesses.

But that doesn’t mean every company connected to AI will make money.

And it doesn’t mean every share price can keep rising simply because the letters “AI” are somewhere in the story.

BlackRock’s latest quarterly outlook still sees opportunity in the AI buildout.

But it is becoming more selective.

Its focus is increasingly on the bottlenecks.

Power.

Infrastructure.

Financing.

Supply constraints.

And the ability to turn enormous spending into actual earnings.

BlackRock still sees plenty of opportunity in AI.

But it believes the winners may be the businesses that can solve practical problems like power, infrastructure and supply.

The Reserve Bank has raised similar concerns from a different angle.

It has warned that excitement around AI is pushing some investments higher, while more money is being borrowed to fund the boom.

If the profits don’t eventually justify that spending, investors could be in for a painful adjustment.

That matters because many investors may already have more exposure to this theme than they realise.

An investment in the S&P 500 sounds like exposure to 500 different companies.

And technically, it is.

But the ten largest holdings now make up around 40% of the index, with Nvidia, Apple and Microsoft alone representing more than one-fifth.

So a portfolio that looks diversified on the surface can still be heavily influenced by a relatively small group of technology businesses.

Now, I’m not saying AI is about to collapse.

I’m not saying people should rush out and sell their US shares.

And I’m definitely not saying we should ignore what could be one of the biggest technological changes of our lifetime.

The lesson is much simpler.

Opportunity and risk often arrive together.

Good investing isn’t about avoiding every popular idea.

It’s about making sure one idea hasn’t quietly become your entire plan.

Next Wednesday, Australia will receive its latest CPI inflation figures.

Then, on Tuesday 3 November, the RBA will make its next interest-rate decision.

The cash rate is currently 4.60% after the RBA increased it by 0.25% in September. The Board has also said it remains prepared to increase rates further if needed to bring inflation back towards its target.

A higher inflation number could increase the pressure for another rate rise.

A softer result could reduce it.

But just like AI, nobody knows the outcome in advance.

That’s why a good financial plan shouldn’t depend on one company delivering perfectly, one investment theme continuing forever, one inflation result or one RBA decision.

It should be built to handle different outcomes.

So perhaps the useful question isn’t:

“Is AI a bubble?”

It might be:

“If the AI story changed tomorrow, how much of my portfolio would change with it?”

That’s a much more practical question.

And often, understanding where your risk is actually coming from is the first step towards managing it.

If you’ve been wondering whether your investments are more concentrated than they appear, feel free to book a discovery session and we can help you understand what you actually own.

Reading is helpful. Having a plan is better.

Book your free 30-minute Discovery Session and let’s build a strategy that fits your life.

7Wealth Pty Ltd ABN 44609210246 is a Corporate Authorised Representatives and is authorised throughCobalt AdvisersPty Ltd ABN 64 628 654 099 who is an Australian Financial Services Licensee 512550. 7Wealth Pty Ltd is a Credit Representative ofAustralian Finance GroupLtd ABN 11 066 385 822 (AFG) Australian Credit Licence 389087.
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