In today’s fast-changing investment world, Artificial Intelligence (AI) is a hot topic. It promises big changes and high returns. But how does it fit into your investments? Should you invest in companies that use AI? What about companies that make the materials needed for AI? It’s a lot to think about.
People love good stories. We often pay more to be part of them. This is because we tend to believe what we want to believe (confirmation bias) and feel hopeful about things we know (optimism). This is why investors are drawn to companies with exciting stories. These stories can push up their prices, even if their core business isn’t worth that much yet. These companies are often called ‘growth stocks.’ They are usually well-known, new, and get a lot of headlines.
On the other hand, older or less exciting businesses are called ‘value stocks.’ They might have some risks, or just a less thrilling story. So, their prices are usually lower. Understanding this difference is key. It helps you see past the hype and set realistic long-term goals for new technologies like AI. The table below shows how some well-known U.S. technology companies are priced. Some are very expensive compared to their earnings, while others are much cheaper.
Table 1: How AI expectations affect stock prices
| Firm name | Price-to-earnings | Description | Classification |
| Palantir | 573x | Big data analytics and AI software. | Growth |
| Broadcom Inc | 112x | Semiconductors and enterprise software. | Growth |
| NVIDIA | 44x | GPUs and AI computing platforms. | Growth |
| 11x | Social media and visual discovery. | Value | |
| HP Inc | 7x | Personal computing and printing solutions. | Value |
| US tech sector | 34x | – | Market |
Data source: iShares US Technology ETF as at 24/06/2025. Yahoo Finance. Price-to-earnings: The stock price as at the date displayed, relative to the earnings per share (EPS) over the trailing twelve-month period (TTM).
The tough part for investors is this: Even great companies with amazing products don’t always make great long-term investments. Stock markets look to the future, and they quickly include future expectations into today’s prices. In our digital world, news spreads fast. Stock prices change almost instantly when new information comes out.
Look at companies like NVIDIA, Broadcom, and Palantir. Much of the excitement about AI is already built into their share prices. These stocks have high “price-to-earnings” or “price-to-sales” numbers. This means investors are paying a lot today because they expect these companies to earn a lot in the future. The higher these numbers, the more growth and profit the company must deliver to prove its current price is fair. There’s less room for error. If expectations are already very high, future returns might be small unless these companies do even better than expected.
Value stocks, like Pinterest and HP, trade at lower prices compared to their actual business. This lower price suggests higher risk. But if the market is pricing that risk correctly, investors should expect higher returns over time to make up for it. Sticking with these ‘boring’ stocks might feel odd sometimes. But historically, it has paid off for investors who are patient and look beyond the latest trends.
Figure 1: How often value stocks have outperformed growth stocks, by region
Source: Ken French Data Library © US (Jul-26), Developed ex-US (Jul-90) and Emerging (Jul-91) – three factor model to Apr-25.
Finally, for investors who follow a clear strategy, the goal isn’t to avoid new technologies. It’s to gain from their growth without paying too much for them. A wide-ranging investment mix, like the one we suggest, lets you own parts of these successful companies as they grow. At the same time, it slightly shifts towards value companies, lowering your exposure as expectations become more realistic. This approach might feel strange, especially when a company is doing great. But it helps manage risk and keeps you focused on your long-term plan. You still benefit from the journey, but you don’t rely on one company’s success for all your returns.
General Investment Risk Warnings
Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested. All investments carry an element of risk which may differ significantly.
If you are unsure as to the suitability of any particular investment or product, you should seek professional financial advice. Tax rules may change in the future and taxation will depend on your personal circumstances. Charges may be subject to change in the future.
Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Portfolio performance data are for illustrative, educational purposes only and do not represent live client portfolios.
Products mentioned in this document
Any products mentioned here are only for education. They help explain the topic. We have not fully checked or recommended any product mentioned. You should not think of it as such.
| Firm name | Price-to-earnings | What they do | Type of Stock |
| Palantir | 573x | Big data analysis and AI software. | Growth |
| Broadcom Inc | 112x | Computer chips and business software. | Growth |
| NVIDIA | 44x | Graphics chips (GPUs) and AI computing. | Growth |
| 11x | Social media and finding ideas with pictures. | Value | |
| HP Inc | 7x | Personal computers and printers. | Value |
| US tech sector | 34x | – | Market |