When Great Technology Meets Great Expectations

Doug Walters, CFA

Alphabet’s nearly $500 billion one-day decline offered a dramatic reminder that innovation and attractive investment returns do not always go hand in hand. This week, we look at what previous technology booms can teach us about AI, changing expectations, and why a disciplined investment process matters most when uncertainty makes action feel urgent.

“Editorial illustration of a data center under construction, with a crane adding another section to the expanding structure.”

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

Last week provided investors with another reminder of just how quickly expectations can change. On Thursday, shares of Alphabet (better known as Google) fell nearly 13%, wiping roughly $500 billion from the company’s market value. It was the worst percentage decline in Alphabet’s history as a public company.

Alphabet continues to grow. Third-quarter revenue increased 25% from a year earlier, while Google Cloud revenue increased 103%. At the same time, Alphabet reported negative free cash flow of approximately $9.1 billion and maintained its full-year capital-expenditure guidance of $195 billion to $205 billion. Management also said it expected capital spending to increase significantly in 2027.

Investors appear to be increasingly questioning what return all this spending will ultimately produce. That question has been asked before.

Lessons from History

Railroads transformed commerce. Electrification transformed industry and daily life. Telecommunications companies laid the fiber that helped make the internet possible. In each case, enormous amounts of capital were required to build infrastructure for technology that ultimately changed the economy.

But creating something revolutionary and valuable does not always translate into attractive returns for investors.

We wrote about this earlier this year. Every major investment cycle has a financing story. Some capital builds enormously useful assets. Some earns exceptional returns. And some is committed at prices that ultimately prove too optimistic.

Sorting Winners from Losers

The AI story is still playing out and the particulars may differ from the past, but eventually investors gain clarity on how to sort out the winners and losers.

The winners may be today’s hyperscalers spending hundreds of billions of dollars building data centers and computing capacity. They may be semiconductor companies and other suppliers. Or some of the biggest beneficiaries may eventually be businesses we are hardly talking about today: companies that use increasingly capable and abundant AI to become more productive, develop better products, lower costs, and serve their customers more effectively.

Maintaining Discipline

As always, there is significant uncertainty when contemplating the future. That is not a reason to avoid investing. But it is a reason to maintain a disciplined, evidence-based process.

We approach the current environment from two directions. We want portfolios to participate in long-term economic growth, but we also want to avoid excessive dependence on a small number of companies or a single investment narrative. As market leadership and expectations change, diversification and thoughtful rebalancing can help keep any one outcome from becoming disproportionately important to a client’s financial plan.

A $500 billion one-day decline naturally gets attention. But it does not tell us AI is failing, the investment boom is over, or what markets will do next. We don’t need to know today who ultimately wins the AI investment cycle. We need a disciplined process that does not require us to know.

Diversification and rebalancing are part of that process. So is behavior. The hardest moments in investing are often those when doing something… anything… feels most urgent.

A disciplined investor doesn’t ignore uncertainty. They simply refuse to let uncertainty make the decision for them.

In the short run, the market is a voting machine, but in the long run it is a weighing machine.
Widely attributed to Benjamin Graham, buy likely refined by Warren Buffet

One thing to watch

Last week, the Federal Reserve’s preferred inflation measure showed that price pressures remain elevated, with core PCE running at 3.1% year over year in September.

This week, all eyes turn to the midterm election results. Control of Congress will be consequential for policymaking, but as we discussed last week, election outcomes have historically offered little guidance about what markets will do next. But we’ll be watching for the market reaction and any opportunities it creates.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $3 billion, as of 6/3/26.

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