I just returned from a whirlwind trip with RiskHedge publisher Dan Steinhart. Over the last two weeks, we visited more than 40 companies across Austin, Los Angeles, San Francisco, and New York.

We saw nuclear reactors... fusion technology... drones... rockets... and robots. Even a company teaching computers how to smell. 

I was also invited to do an interview at The New York Stock Exchange, which I’d never been to before (click the picture to watch).

There is absolutely no substitute to speaking with the actual founders working on the front lines of technology. I learned more in two weeks than I could have during a lifetime of reading articles on the internet. 

By far my most important takeaway is that Phase 2 of the artificial intelligence (AI) trade is over, and Phase 3 how now begun. Dan and I are planning a special video conversation to fully explain what this means for our investments in about two weeks. I’ll let you know when we have an exact date. It’s an exciting time to be a disruption investor.

Today, I want to answer a question that was plastered all over the screens at the NYSE...

And probably on your mind too after yesterday’s broad market selloff which saw the Nasdaq fall 5.5%: 

Are AI stocks in big trouble? 

Some of my notes from the trip can help answer this.

• One of the companies I visited builds satellites.

Its founder told me about a problem his team ran into while developing a rocket propulsion system. They needed specialized software to test their rocket engine designs. Only one company made the software they needed, and it costs $40,000.

He said, “Stephen, we’re a startup… that’s like 2% of our annual budget!”

So one engineer decided to take a crack at building the tool himself. He asked Claude to help write the software.

Three days later, he had a working solution.

Now multiply that story across thousands of startups. How many promising inventions have stalled because the founders couldn't afford the tools or expertise to get moving?

AI is starting to knock down those barriers. Small teams can punch far above their weight. And ideas that once died on the drawing board have a better shot at becoming real businesses.

• At a nuclear fusion company…

I spoke with the chief technology officer.

With the latest Claude models, his team can now tackle complex research problems that used to require PhD-trained nuclear physicists.

They’d spent years experimenting with AI for this kind of work. But the earlier models kept falling short. The breakthrough came in just the past two or three months.

We tend to think of technology progress as a steady march forward. But sometimes a new tool crosses a threshold and suddenly becomes useful for work that was out of reach yesterday.

And AI keeps getting better. Imagine how many other fields are just one model upgrade away from their own breakthrough. Discoveries that once seemed decades away could arrive in a fraction of the time.

Often, AI doesn’t even need to make 150-IQ breakthroughs to be valuable.

Another founder we met told us how he needed to extract data from an old computer system, but he kept deferring it because it would cost a ton and take a team of engineers one year to finish. 

AI got the job done in less than a day.

• Most people experience AI through a chatbot.

They ask it to draft an email, plan a holiday, or help with a recipe.

Meanwhile, some of the brightest engineers and scientists in the world are now using the same underlying technology to solve problems at the frontier of what's possible.

And as the stories I just shared show, these capabilities are improving at a breathtaking pace. Imagine what will be possible in another year… or five.

Yet back on Wall Street, investors seem more focused on short-term stock price movements than AI's long-term potential.

Many AI stocks have been cut in half in recent months. The selloff has left investors wondering whether the boom has run its course and the easy money has been made.

But these firsthand experiences convinced me that AI is the greatest productivity booster in history. If anything, its potential is underhyped.

And when stock prices fall even as the underlying businesses grow stronger, it creates extraordinary opportunities for investors.

• Here are two ways to capitalize on this.

First, every new application creates more demand for computing power.

As businesses find more useful work for AI to perform, they'll consume more AI tokens—the units of information processed by AI models. That feeds demand for chips... memory... networking equipment... data centers... and electricity.

Second, AI will dramatically accelerate the growth of small, ambitious companies.

Imagine a promising startup bringing its breakthrough to market years ahead of schedule. Or a tiny business suddenly competing with established industry giants.

More soon... And keep your eyes peeled for Monday’s Jolt, where we’ll show you how to “override your instincts” to manage today’s volatility.

Stephen McBride

Chief Analyst, RiskHedge

Reader Mailbag

If you missed my Jolt on the midterms, “They mocked me on live TV,” read it here to see why history shows the next year could be great for stocks. I appreciate this, Terry!

Hi Stephen,

Consider it a badge of honor being mocked by the talking heads. In fact, if they ever invite you back, refuse to go because they typically only invite shills—and you don't want to be seen in that group. A wise man once said, never argue with idiots—it's a waste of time. Reserve your discussions with those of good character. Have a great weekend! 

Cheers, 

Terry

Jim adds:

You are the only one that I have seen saying to buy stocks now.

Every article I've read before yours is all telling of a so-so decline or a massive decline. And I think most are basing their decision on the midterm elections. Guess we will soon see.

As a reminder: For each of the past 21 midterms, stocks have always climbed higher a year later. And since 1942, stocks have jumped an average of 20.3% in the year after a midterm. We’re also entering the third year of a presidential term, which is historically the strongest year for stocks. 

Write me at stephen@riskhedge.com with any questions. Have a great weekend.