AI, Private Credit, and the Return of Easy Money
Every market cycle creates a story that captures investors’ imagination. In the late 1990s, it was the internet. Before that, it was railroads. Today, it’s artificial intelligence. The question isn’t whether AI will change the world. It almost certainly will. The better question for investors is: Who will actually make money from it? That was one of the fascinating topics we explored on the latest episode of the Payne Points of Wealth Podcast with Brooks Cutright, Portfolio Manager at Hedgeye Asset Management. His answer may surprise you.
Why Tech Stocks Suddenly Hit a Speed Bump
Earlier this summer, investors were rattled by a sharp selloff in many of the market’s biggest winners. Semiconductor stocks, AI infrastructure companies, and parts of the Magnificent Seven all came under pressure. The common narrative? “Hedge funds are dumping tech,” Brooks argues; the reality may be much more mechanical.
As trillions of dollars flow through indexes and ETFs, quarterly index rebalancing events can force massive buying and selling activity. When a company such as SpaceX enters major indexes, those funds have to make room by selling something else. And what do they sell? Typically, the largest holdings they already own. That means names like NVIDIA, Microsoft, Apple, and other mega-cap technology stocks can face short-term selling pressure even when nothing has fundamentally changed about the business.
For long-term investors, that’s an important reminder: Not every market decline is a signal that the investment thesis is broken. Sometimes it’s simply a reflection of how modern markets operate.
The Trillion-Dollar Question: Will AI Ever Pay for Itself?
Today, the hyper-scalers are spending staggering amounts of money building AI infrastructure. Data centers. Semiconductors. Power generation. Cloud capacity. The investment numbers are so large that investors are beginning to ask a simple question: Will the return on investment justify the spending?
Ryan asks Brooks that question, and he makes an interesting comparison to previous technological revolutions. When railroads transformed the economy, not every railroad company survived. Many investors lost fortunes chasing the hottest story. Yet the broader economy benefited enormously. Businesses became more efficient. Transportation costs fell. Productivity surged. The same thing may happen with AI.
The companies creating the technology may face enormous competition and declining margins over time. But companies using AI to improve productivity? They could be the real winners.
As investors, we shouldn’t become so focused on the companies selling the picks and shovels that we ignore the businesses putting those tools to work.
A Bigger Risk Than AI?
While headlines focus on artificial intelligence, Brooks highlighted an area that deserves more investor attention: Private credit. Over the last several years, investors have poured billions into private credit vehicles seeking higher yields. The challenge is that many investors are focusing on the income while paying less attention to the underlying risks.
History shows that liquidity is easy when markets are calm.
Liquidity becomes much harder when everyone wants their money back at the same time.
As financial planners, we constantly remind clients: Higher returns rarely come without higher risks. Understanding those risks before you invest is far more important than discovering them during a market downturn.
Lessons for Your Financial Plan
The biggest takeaway from our conversation wasn’t about AI, SpaceX, hedge funds, or private credit. It was about perspective. Successful investing has never been about predicting every market move correctly. It’s about building a portfolio that can survive in a variety of market environments. Brooks shared a lesson many professional traders learn the hard way: “You don’t have to have an opinion on everything.”
The same principle applies to financial planning.
- You don’t need to predict the next AI winner.
- You don’t need to chase every new investment trend.
- You don’t need to react to every headline.
What matters is having a disciplined plan, diversified investments, appropriate risk management, and the patience to allow compounding to work over time.
The investors who create long-term wealth are usually not the ones making the most predictions. They’re the ones making the fewest mistakes.
