How The AI Race Will Affect Your Savings.
Think about the last time you watched a big building go up in town. For months, there is noise, trucks, and a great deal of money going out the door before a single customer walks through it. The owner is betting that what gets built will earn its keep for years to come.
Right now, some of the largest tech companies in the world are making that same bet, on a scale most of us have never seen. Tech companies have been forced into an AI race to the top, a race that could seriously impact your savings.
Fact: AI has become the most rapidly adopted technology tool… in history.
In just over three years since it became available to the average person, more than half of us are using it.
That pace has forced the big technology companies to build, and build fast. You may have heard the term CAPEX in the news. Capital Expenditure is simply the money a company spends today on buildings, machinery, computers, and factories, in the expectation that they will produce profits in the future.
Announced AI CAPEX investments include Amazon at $220BN, Alphabet (Google and YouTube) at $200BN, Microsoft at $190BN, and Meta (formerly Facebook) at $140BN. Nvidia has announced only $6BN, because it is preparing to supply the computer chips everyone else will need, and chips take up far less space than the computers needed to run AI.
Now, how does a $220BN investment by Amazon affect your savings or retirement?
Well, it all comes down to what AI does. It handles repetitive tasks, so companies can produce the same output with fewer people, which over time can make them more profitable. It also lets them serve more customers, which means more sales without the loss of jobs. More profitable companies can see higher share prices and pay larger dividends, which are a share of profits paid to the owners of the company, and that is the kind of income many of us rely on in retirement.
Like any big project, however, this one comes with risks, and I see two. The first is that AI turns out to be less than advertised. Given how quickly it is being adopted, and the new uses found for it every day, I don’t think that is likely.
The second is one every homeowner will recognize. Regardless of how big these companies are, they still cannot pay for projects this size out of their own pockets. Like homeowners, they too have to borrow and pay interest on the money they use to fund their investment. If you have ever renewed a mortgage and found the rate higher than expected, you know how that feels. And so, if borrowing turns out to be more expensive than these companies planned, it could mean a temporary dip in their share prices, and that would affect your investment returns.
Only time will tell how these investments pay off, and there may be bumpy times in share values along the way. Looking at personal investment portfolios, there are two investment options I see on the table for early 2027. The first is to stay the course and ride it out. But if the headlines about technology spending leave you uneasy, or you are planning a large purchase in the next 3 years, a more conservative approach may be worth discussing, and there is nothing wrong with that.
Your peace of mind is important to us at BGIP, and we are always here to guide you.
If you are looking for investment guidance as the AI race heats up, you can call 905-686-5678 any time. You can also book a no-obligation meeting here:
bgip.ca
Our doors are always open too; feel free to drop into the office at 119 Perry Street, Unit 3 (at the corner of Perry and Mary).
BGIP is committed to making sure our community has access to quality investment education, and our blog, theinvestorscorner.ca, is filled with free investing education.
Let BGIP handle your investments while you focus on what is most important right now: FAMILY.
Enjoy the holiday season, and from our family to yours: Happy Holidays.
Brian and the BGIP Team
