TRANSCRIPT:
Welcome back to Financial Foundations, brought to you by Base Wealth Management, where we are the foundation to your financial plan. I’m your host, Dustin Taylor. I’m your co-host, Alex Wolfe, certified financial planner. And today we have with us Jeremy Riggs, and we are discussing whether or not we are in an AI bubble. Thanks for joining us, Jeremy.
Yeah, happy to be back. Everyone’s talking about AI these days. They’re trying to race and launch their AI products before anyone else, and there’s just an abundance of AI technology coming out right now. What’s behind all the buzz? There’s a lot of spending behind the buzz. Five of the companies from the Magnificent 7 alone are spending 350 billion in 2025 in AI development alone, which is a huge investment. So, rightfully so, they’re creating energy and a buzz about it because eventually they’re going to want to see it pay off all that investment.
And at least in our industry, there’s a lot of AI and technology that are already available. They’re machine learning models. So, they’re getting better. But even in our daily lives, we’re seeing AI pop up from website chat bots that are using AI and they’re maybe not allowing you to speak to like 800 call center people any longer. What do you think, Jeremy? How have you seen it being used and what’s all the buzz about?
I think the first point is the billions that are being spent. I mean, just follow the money. There’s a lot of new potential out there. So, that’s where a lot of the hype is coming from. And you’re correct, like, you know, reach out to any company. You’re going to go through a bot first. Even big companies, you go through a bot. And then if they can’t answer or provide you the resource, then you might get a person. And a lot of companies are looking at how does that save them as far as expenditures.
You know, we put this bot in here and that cuts down on all the small things that we used to have to have a person to do. Now we don’t need that. But I’m curious, like, what do we do with that time? It’s like you’re going to get all this time back. Now what do we do with it now that we have tech taking care of us? You think back to like the industrial revolution? It’s like you had all these things come in that made all these things a little more efficient. What do we do with that?
In the service industry or software industry, you have to be careful. And this goes across all industries I think. I have an example in the software industry though. I was on a website called GoDaddy. Maybe you’ve heard of it. And I needed to transfer a domain from one customer to another customer. Domain is URL. For instance, basewealthmanagement.com to transfer it to another customer and they had emails attached to that. I put in their chat rather than calling them, “If I transfer this domain to another customer will the emails follow?” and the chat told me, “Yes absolutely they will.”
So then I did it and then I tried to get the emails to work and of course it told me that’s not how it works. They don’t transfer with a domain—like a real person told me that. And I was like, “But your chatbot told me it did. That’s the whole reason I did it.” And I was lucky and they were lucky too because I would have been really upset that they were able to fix it. But it’s just you have to be careful. I think that’s a lesson across all these different industries where you’re using AI. You have to understand that it’s not perfect.
Yeah. I think I’ve spoken with a lot of colleagues and friends about AI. You know, everyone’s talking about it. We’re here sitting talking about it. But a lot of companies’ employees are using AI in their day-to-day work functions. And Jeremy and I were talking before this podcast about like the phone revolution in the mid 2000s when smartphones were really like in their early stages. Like some barely had a functioning internet or web browser. Some had a camera but took like 1 megapixel quality photos or whatever.
So yeah, there’s it’s in its infancy, but there’s so much money being poured into the development and the goal is to improve efficiency and as you mentioned, free up time and how do we reutilize that time? It’ll be a very interesting change to see because to your point, I was talking to somebody and they said, “Well, I can’t do this based on this tax.” I’m like, “Well, where did you read that?” “Well, I used ChatGPT to get it.” It’s like, okay, well, let’s go and actually verify that what it’s telling you is actually what the law says.
And I think that’s going to be the interesting part about this new technology is like it will improve lives in some ways, but there will be a learning curve and there will be some things that we don’t like that come out of it because on the one side of the coin, we’re going to get all the pros. On the cons, if you have someone that’s trying to do a scam, this is going to be a technology that they use against people as well. So, you always have to balance just like having smartphones. They’re great for what they give us, but also how many times have you seen someone almost cause an accident because they’re looking at a smartphone and they’re not really using that technology to the best of its ability.
So, bringing it back to the markets and things like that, is it accurate that AI is kind of propping up the market right now? That’s one question. And then my followup to that or a side question I guess is is there a difference when we come out of this AI boom whether one to two companies kind of win the AI race versus it spread out kind of evenly over a bunch of different companies. Does that affect the market differently?
Uh yeah. I mean these are all great questions and I’m sure Jeremy can vouch like clients are asking this type of stuff. The ones that are more in tune with the market and how the market’s been performing. Obviously, a lot of the returns have been led by some AI tech or tech companies, but there’s also been strong earnings growth by companies that are not considered AI leaders, but they’re investing in AI in their functions of their business.
The way that we’re thinking about AI is not just those hyperscaler tech companies or the chip companies or the NVIDIA of the world, but everything that it’s potentially touching and the downstream effects of the infrastructure, the data centers, the electric, the utility companies. There’s so many other companies out there that are participating in the AI sphere, but they’re not necessarily seen as an AI company. What do you think, Jeremy?
It’s a great point. It’s like everyone talks about like Nvidia or Google or the big tech companies, but it’s like it’s more than just that because it is going to go downstream to your point: data centers, infrastructure, all of those other companies that benefit from that. I think of it as like they may not be tier one, your early adopters, the tech companies where this comes from, but they might be tier two or tier three that they’ll be affected. Maybe it helps them with how they manage their business or how they store things.
And you think years ago, like you had tech where they had these servers and you had to have physical data storage and now some of it on the cloud. Think about how much the cloud has changed how we operate. Good and bad. I think it’s going to be the same thing. You’re going to see companies adopt different things that can be directly linked back to the first adopters and the tech companies that created it.
One example that I think about is an industry that is definitely not AI related but are using the AI technologies is like retail. Eventually, and probably sooner than later, their buyers of like shoes—like my wife used to work at Foot Locker as a buyer. They’re probably able to look at website data and clicks and all this type of information and AI can analyze that to help them plan supply and what buys they’re looking to make based off of traffic and things like that to the websites. So I would imagine those companies are using and investing in AI for demand planning and all kinds of stuff.
Yeah. What I think is interesting going sort of back to my question and Jeremy’s speaking about data centers and stuff like that is now those cloud centers are still physically stored. They’re just big companies doing it in warehouses and things. So I think it’ll be really interesting on how it affects the economy. I guess that’s my question is if two of the big companies win the AI race and then all these other companies have invested so heavily in these data centers to process the AI, those data centers are no longer going to be needed anymore. So at the very least the commercial real estate that they own is going to be kind of empty and maybe that affects it in other ways as well. Do you have any thoughts on that?
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I don’t foresee that being the case in the future. I see a huge need for data storage because everything is cloud-based or is moving that direction and there’s a huge competition of being able to store data. So you’re seeing—and it’s tricky to do—because data centers have to be near huge sources of energy because of the power demand it requires to run these. And inside of those you have cooling, you have the electrical and conduit and all that stuff.
So there’s companies that are building these and then as you mentioned you’ve got the actual owner of the property or the real estate which is another kind of area that your big players are jockeying for like your Blackstones, your Hinds. These big real estate companies are trying to acquire specific plots of property or existing ones because they see the demand for storage being very critical for all the AI just because of those server type of requirements. A point I made earlier about the infrastructure is how much energy it takes to run that. So putting politics aside, when you think about renewable or clean energy, we need it all. We need your classic energy, we need renewable, whatever you want to call it, because that’s how much power is going to take to run these data centers.
Great question. As far as the data, I think we’re going to need it. And I think back to like how much storage do people have? Most people have a garage, they don’t put their car in it. They store stuff and then they go to get a storage unit to store more things. I think people are going to do that, especially with how much we can travel. So now if you think about how easy it is you can hop a plane and be in another country tomorrow and you want to capture those moments. No one’s really going to have old school pictures of it or photo albums. It’s all stored. Well, where are we going to store that? It’s going to be data centers. So it may shift if what we’re using it for now isn’t as big. There might be a public sector that comes in like, “Hey we will use that but in a different way,” as we adapt to what the future looks like.
Yeah. Not that I wanted to make this correlation as I mentioned earlier with smartphones and where we used to be compared to now, but remember our early smartphones had like 5 GB of storage on them. Like two pictures. And now you need a minimum of like 250 gigs and then Apple will sell you more or Google will sell you more storage if you need it. Well, you want to have those photos. It’s like you went on this great travel and you want to show people and it’s like, well, I don’t want to delete this off my phone. So every time you get a new smartphone, it’s like, well, I’ll get 8 gig, 16, 32. It keeps going.
I was interviewing a real estate manager earlier this week, actually. And in their portfolio is a data center in Northern California that provides a huge backup storage to Apple. And that’s a huge part of that real estate portfolio. And you just think of all those companies. I don’t think there’ll be two winners in your example. There’s going to be many. There’s a lot of junk out there. And that’s how we are kind of winding our way through this investment period of like these companies that are being propped up by the good ones.
Just like we saw happen during COVID, like everything shot up, but then things kind of started coming back down to reality. Like if you think about individual securities like the Zooms, they were trading at significant premiums compared to where they normally were during COVID and then things kind of settled down. That’s a random example, but there’s a lot of fluff out there, but it’s important to be prudent in your investing and find the companies that are able to scale. They’re already, you know, maybe cash flow positive, but there’s going to be companies out there that aren’t probably profitable right now, but have a great technology that will either they’ll be bought up or they’ll become profitable and scale and become a mega cap someday.
Well, yeah, I think that the data centers definitely seem like a good investment for companies because going back to what Jeremy said about the garage example, there’s this joke I’ve seen online, maybe you’ve seen it too, like whenever I was growing up, there’s like three pictures of me and now I have like hundreds of my child from today, right? Just one day. So, you have more of them in a week than you have in your 18 years of living at home.
Yeah. And then it’s even more relatable than that. You guys are talking about upgrading your storage. I finally for the first time—I’ve always gotten the lowest amount, I think 256 gigs of the iPhone—and now I got a free upgrade with Verizon and I had to go to the 512 because I kept getting the notifications. So great example is how much storage the AI apps require on your phone. Oh, so whenever we need to, “Oh, there’s a new software that we need to download or new update.” In the old days, you might have to delete photos and videos and music off your phone before you can even download that new update. And now that storage is taking up more on your phone than ever because of how much data that those AI platforms and apps take up.
Yeah. So I want to—bringing it back to investments and Base Wealth Management portfolios—how is Base Wealth Management thinking about AI and incorporating it into the different portfolios? We’re thinking about it in many different ways or arenas and how you can participate in those investments. One is directly in those companies, whether it be a tech-focused sector or if you’re using passive, you’re getting a ton of exposure to it just by being in like the Russell 1000 or the S&P. Or if you’re looking like style sector specifically, you might be thinking about it from large cap growth.
But there’s also small and midcap companies that are in AI or tech-related business areas. But outside of that, thinking about again what we talked about earlier: the companies that are playing into it. They’re the ones that are building the data centers or they’re the ones that are running all the electrical work to the data centers or maybe it’s the HVAC company that’s running all the cooling that’s needed to the facilities and things like that. And I think that those companies are going to do well. One, there’s contracts. So when you have like guarantees or contracts or government contracts, that’s a really good thing for your business. But I also think that there’s a lot of junk out there just like there was in the tech bubble that companies got propped up or elevated because they were just in the same arena. But they really were not well-run companies or they for whatever reason floundered out and went bankrupt. What do you think and how are you seeing us use this for your clients, Jeremy?
So, the way I think about it with clients, if we look at—it’s really interesting if you’ve ever seen what were the biggest companies over the last couple decades and how that’s changed. And if you look, it’s tech. Tech is driving, if you look at any ETF, mutual fund, tech is what’s driving those returns. So, I think you have to participate in that. You know, saying, “Well, AI, I don’t like it.” Well, it’s here. It’s like smartphones, the internet. You’re going to have to work with it, adapt to it.
And I think that’s how you need to approach the portfolio is like there are great opportunities out there. But we always kind of go back to the basics like okay, let’s not put everything into one company. And then kind of layer down from that. It’s like your tier one that I mentioned earlier. Okay, these are your companies that are going to have big returns. They’re investing a lot of money, but let’s not forget about all the infrastructure that goes along with it. And then having a balanced portfolio like there’s going to be another revolution with technology and who knows what 20 years brings down the road but it’s the same principles of going back like, “Hey does this make sense? Is there a growth opportunity? Why are we investing it?” If you answer all those questions I think you’ll find AI still fits into it.
One thing I remember from many years ago when I was interviewing this manager—they manage a long-short fund meaning they have made purchases of companies but they’re also shorting on the other end other companies that they think are going to go down or they’re not good companies in their opinion. And one thing that they brought up to me was you can invest in something like Tesla or you can also if you like Tesla and think that they’re going to sell a boatload of cars or in the future a boatload of robots or whatever they’re making. But there’s also thousands of other companies that are supplying components to their vehicles or to the robotics things.
And what I mean is like what do you think about like autonomous driving? There’s radar sensors, there’s cameras, there’s all kinds of stuff. So you can invest in those companies too and their client is Tesla. So it’s a way to invest in different businesses, but you’re reaching further down the line. I think that’s a great point. It’s like think about like the oil industry. Like most people don’t realize there’s upline, there’s downline. It’s like, well, it’s not just people who go and get the oil out of the ground. It’s like what about the pipelines that move it? What about the byproducts that we use every day because of that industry? It’s like you don’t necessarily have to go and buy oil and gas, but it’s like you can still participate in that sector, right?
So, finally, with all the excitement and some very high stock prices, how do you know where this is going? Are we in an AI bubble? What do you think? In my opinion, we are not in an AI bubble, but there will be companies that bust or burst. There’s so much innovation and money going into this technology and in future efficiency and growth that there are companies that are significantly trading over their fair value or whatever you want to measure their price. But that doesn’t mean they can’t grow into that valuation because eventually they’ll start to see some of that pay off and it’ll pay off in different ways where they’re able to trim certain areas of their business and add to other areas. So when you think about when you hear about companies that may need to lay people off or people are losing jobs to AI—just like the industrial revolution—those people are good at things and will be totally repurposed and have value in some function of either that same company or another company.
Yeah, I agree with you. I don’t think we’re at a point where we’re going to have a what you would consider a true bust where everything just pops. But I think there are going to be companies that do it better than others. And if you think back to beginning of the internet and like what search engines were out there versus what is the go-to now—like there were a lot of different people competing like you mentioned—what are going to be the one or two that really do it well? I think we’re going to see people, you know, execute well on the vision of how to implement AI, not just now, but what are we going to use it for five, 10 years down the road. And those will be the companies that are here and growing. And you’re going to have companies that were very shortsighted that tried to just get a lot of the hype. And then it’s like they didn’t have a vision of, “Okay, how is this technology going to be used by our consumers 10 years down the road? And are we building to meet that demand?” And those are going to be the companies that didn’t have the planning in place and they’re no longer here.
What’s interesting to me, and maybe they lean into this, is that unlike web browsers, for instance, where the go-to now is generally probably Google at the moment, each of these AI companies, they’re kind of good at specific things and not other things. So I think that ChatGPT is probably more generalized for usage but it’s not so good at creating images and that’s where you would use something like Midjourney or or Google’s Nano Banana which is super good at it.
I’ve never even heard of those.
And then Grok for instance is good at I believe writing and there’s just different use cases for each one whereas a browser is just a browser to view the internet. And so maybe, you know, that helps these companies in the long run if they lean into these specific focuses of what they’re good at and they don’t try to do everything.
Yeah. I think it would be it’s very difficult for you to be good at everything in many industries. It’s hard to do everything awesome, but if you can be in a specific niche where you’re the photo AI editor, whatever it is, obviously I think that would go a long way because either people will adopt your technology or you might be able to license it. There might be other ways to use it.
Totally agree. I think just like with the smartphones I mentioned earlier, there’s a lot of competitors and now you really have two camps as far as smartphones go. Not that one’s better than the other, it’s just this is what came out of all of that learning and this is what people like.
Yeah. And some of the companies are trying to overtake other companies. For instance, OpenAI launched a search engine now. I’m not sure if you’re aware of that, but they’re trying to compete with Chrome. That’s the only fun thing is like right now it’s a new technology, but fast forward 10 years from now, you’re going to have the same thing that always happens. You have disruptors come into this and be like, “Hey, we can do that one thing better.”
Yeah. Well, I think the competition is great. I mean that’s where the innovation is all driven. So bring it on.
Exactly. All right. So that concludes our discussion on AI today. If you would like to hear more financial insights, visit our website at basewealthmanagement.com. If you have any topics or questions that you’d like to submit to the podcast, you can send those into us at questions@basewealthmanagement.com. Check out our YouTube channel, subscribe to our podcast, and visit our website often. Thanks for joining us, Jeremy.
Happy to be here.
I’m Dustin Taylor. I’m Alex Wolfe. And happy listening.
